AUD/USD Analysis: Bulls remain at the mercy of USD price dynamics, eyes US NFP on Friday

• AUD/USD scales higher for the second straight day, albeit lacks bullish conviction.
• Retreating US bond yields prompts USD profit-taking and lends support to the pair.
• The fundamental backdrop favours the USD bulls and should cap any further gains.

The AUD/USD pair builds on the overnight modest bounce from the 0.6285 region, or its lowest level since November 2022, and gains strong follow-through traction for the second straight day on Thursday. Spot prices draw support from a further US Dollar (USD) pullback from a nearly 11-month top, triggered by reduced bets for another rate hike by the Federal Reserve (Fed) in 2023. A report published by Automatic Data Processing (ADP) showed that the US private-sector employers added only 89K jobs in September, marking a sizeable decline from the previous month's upwardly revised reading of 180K. Furthermore, the US ISM Services PMI declined from 54.5 to 53.6 in September. Apart from this, the recent slump in Crude Oil prices to a one-month low eases inflationary concerns and gives the Fed some incentive to stop raising interest rates. This, in turn, drags the yield on the benchmark 10-year US government bond away from a 16-year peak and undermines the USD.

Apart from this, the risk-on impulse is seen as another factor denting the Greenback's relative safe-haven status and benefitting the risk-sensitive Aussie, which draws additional support from the upbeat domestic data. In fact, the Australian Bureau of Statistics reported that the trade surplus expanded to A$9.6 billion, driven by a 4% rise in exports. Imports, however, declined by 0.4% and pointed to a weak domestic demand, fueling recession fears. This comes on the back of the Reserve Bank of Australia's (RBA) neutral stance and might hold back traders from placing aggressive bullish bets around the AUD/USD pair. In fact, the Australian central bank noted that there is uncertainty surrounding the economic outlook and that inflation has passed its peak. This suggests that the RBA might have already ended the rate-hiking cycle. In contrast, the Fed is still expected to stick to its hawkish stance and keep interest rates higher for longer, which should limit the USD corrective slide.

The incoming US data remains consistent with expectations for solid economic growth in the third quarter. Moreover, the recent comments by several Fed officials backed the case for further policy tightening to bring inflation back to the 2% target. This keeps the door open for at least one more Fed rate hike in 2023, which should act as a tailwind for the US bond yields and support prospects for the emergence of some USD dip-buying. Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom. Traders might also prefer to wait on the sidelines ahead of the closely-watched US monthly jobs data, popularly known as the NFP report on Friday. In the meantime, the US Weekly Initial Jobless Claims data might provide some impetus later during the early North American session.

Technical Outlook

From a technical perspective, the AUD/USD pair struggles to capitalize on its intraday positive move beyond the 0.6365-0.6370 confluence, comprising the 100-hour Simple Moving Average (SMA) and the 38.2% Fibonacci retracement slide of the recent decline witnessed over the past week or so. This is closely followed by the 200-hour SMA, currently around the 0.6385 region and the 0.6400 mark, or the 50% Fibo. level. A sustained strength beyond the latter should allow spot prices to surpass the 61.8% Fbo. level, around the 0.6420 region, and make a fresh attempt to conquer the 0.6500 psychological mark.

On the flip side, weakness below the 0.6340-0.6335 area, or the 23.6% Fibo. level is likely to find some support near the 0.6300 mark. Some follow-through selling, leading to a subsequent slide below the 0.6285 region, or the YTD low, will be seen as a fresh trigger for bearish traders. The AUD/USD pair might then accelerate the fall towards the mid-0.6200s before eventually dropping to the 0.6210-0.6200 area.