Title: AUD/USD eyes 0.7000 mark amid modest USD downtick, upside potential seems limited

August 4, 2022 04:30 AM ET

By: AnalysisWatch

The AUD/USD pair continues the previous day's recovery from a week-and-a-half low and gains traction for the second day in a row on Thursday. The steady intraday rise continues in early European trading, sending spot prices to a fresh daily high around the 0.6975 level.

The emerging US dollar sell is proving to be a key factor supporting the AUD/USD pair. Indeed, the USD has struggled so far to capitalize on this week's modest rebound from its lowest level since July 5 amid the ongoing decline in US Treasury yields. That being said, the recent rally in equity markets further undermines the safe-haven dollar and provides additional support to the risk-sensitive Australian dollar.

However, the USD's downside is likely to be contained after several Fed officials expressed more caution this week and hinted that higher interest rates are likely in the near future. In addition, growing recession fears as well as tensions between the U.S. and China triggered by the Taiwan trip of U.S. House of Representatives Speaker Nancy Pelosi could put a brake on optimism in the markets. The above factors are likely to provide a tailwind for the USD and limit gains in the AUD/USD pair.

Investors may also hold off on aggressive bets, preferring to stay on the sidelines ahead of the monthly US jobs data due for release on Friday. The widely publicized NFP report could influence the Fed's rate hike expectations and play a key role in influencing USD price dynamics, which in turn would determine the next leg of a directional move for the AUD/USD pair.