AUD/USD bounces off three-week low towards 0.6650 as US Dollar retreats on mixed clues, Fed’s Powell eyed

• AUD/USD picks up bids to rebound from multi-day low, pares weekly losses.
• Markets sentiment dwindles amid fresh challenges for US debt limit deal, US-China ties.
• Downbeat Aussie jobs report weighs on hawkish RBA bets and prods AUD/USD bulls ahead of the key events.

AUD/USD grinds near intraday high as it clings to mild gains surrounding 0.6630 during Friday’s Asian session, after refreshing the lowest levels in three weeks the previous day.

The Aussie pair’s previous fall could be linked to the broad US Dollar run-up amid hawkish Fed bets and expectations of no US default. However, the latest challenges for the US debt ceiling deal and mixed concerns about the US-China ties seem to prod the greenback buyers and allow the pair to consolidate the weekly losses amid a sluggish session. It’s worth noting that the previous day’s disappointing Australia jobs report also exert downside pressure on the AUD/USD price.

Recently, Reuters came out with a warning note while citing the powerful group of the US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news.

Elsewhere, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the US Dollar advances.

On Thursday, the US Dollar Index (DXY) rallied to the highest levels since early March after the market’s bets on the US Federal Reserve (Fed) rate cut in 2023 dropped while the odds of a 0.25% rate hike in June increased amid firmer US data and hawkish Fed talks.

That said, US Initial Jobless Claims for the week ended on May 12 dropped to 242K on Thursday, versus 254K expected and 264K prior whereas the Philadelphia Fed Manufacturing Survey gauge for May improved to -10.4 from -31.3 prior, versus -19.8 market forecasts. Further, US Existing Home Sales for April eased to 4.28M versus analysts’ estimations of 4.3M and 4.44M prior. It’s worth noting that the US Retail Sales and Industrial Production for April printed upbeat figures earlier in the week and inspired the Fed hawks to defend their “higher for longer rates” bias, which in turn allowed the US Dollar to regain its power.

In a case of the Federal Reserve officials’ comments, Dallas Federal Reserve President Lorie Logan said on Thursday, as reported by CNBC, that data at this time does not support skipping an interest rate hike at the next meeting in June. On the same line, Fed Governor Philip Jefferson said on Thursday that inflation remains too high whereas St Louis Fed President James Bullard reiterated his support for higher rates.

Looking ahead, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be the key for the AUD/USD pair traders to watch as US President Joe Biden said to have the decision to avoid a default by Sunday. Also important will be China’s reaction to the US-Taiwan trade deal.

Technical analysis

Despite bouncing off a 10-week-old ascending support line, around 0.6600 by the press time, the AUD/USD pair needs validation from weekly resistance line, close to 0.6640 at the latest, to convince buyers.