AUD/USD remains below mid-0.6600s, up a little as traders keenly await US NFP report
- AUD/USD attracts some buyers on Friday and draws support from a softer USD.
- Bets for additional Fed rate hikes act as a tailwind for the buck and cap gains.
- The risk-off mood contributes to keeping a lid on the pair ahead of the US NFP.
The AUD/USD pair builds on the previous day's modest bounce from sub-0.6600 levels, or a one-week trough and gains some positive traction on Friday. Spot prices, however, struggle to capitalize on the move and remain below the 0.6650 level through the early European session.
The uncertainty over the Federal Reserve's (Fed) rate-hike path prompts some US Dollar (USD) selling for the second successive day, which, in turn, is seen as a key factor lending support to the AUD/USD pair. The minutes from the June FOMC meeting released on Wednesday revealed that almost all members supported resuming rate hikes as inflation remains unacceptably high. Furthermore, Thursday's upbeat US ADP report and the ISM Services PMI reaffirmed bets for a 25 bps lift-off at the July FOMC meeting. That said, the Prices Paid sub-component of the ISM survey fell to a more than two-year low, suggesting that the closely watched services inflation is gradually slowing and fueling speculations that the Fed will eventually soften its hawkish stance, sooner rather than latter.
The Fed, however, is still expected to continue with its policy tightening cycle, which keeps the the US Treasury bond yields and helps limit the downside for the USD. In fact, the yield on the rate-sensitive two-year US government bond is placed near its highest since June 2007, while the benchmark 10-year US Treasury yield holds steady above the 4.0% threshold. This, along with the prevalent risk-off environment acts as a tailwind for the safe-haven Greenback and keeps a lid on any meaningful upside for the AUD/USD pair. The market sentiment remains fragile amid worries about a global economic downturn and the worsening US-China relations. Traders also seem reluctant to place aggressive bets and prefer to wait for the release of the US monthly employment details.
The popularly known NFP report is due later during the early North American session and will play a key role in infuencing the Fed's near-term policy outlok. This, in turn, will drive the USD demand and provide some meaningful imptus to the AUD/USD pair. Nevertheless, spot prices, at current levels, seem poised to register modest losses for the third successive week.
Technical levels to watch