AUD/USD struggles near three-week low amid stronger USD, ahead of US PCE Price Index

The AUD/USD pair extends the previous day's sharp retracement slide from the 0.6820 region and remains under heavy selling pressure on Friday, or the third successive day. The downward trajectory remains uninterrupted through the first half of the European session and drags spot prices to a nearly three-week low, around the 0.6620 region in the last hour.

The US Dollar (USD) gains some follow-through traction on the last day of the week and climbs to its highest level since July 10, which, in turn, is seen weighing on the AUD/USD pair. The stronger US macro data released on Friday - the Advance Q2 GDP print and Weekly Initial Jobless Claims - pointed to an extremely resilient US economy and increased the likelihood that the Federal Reserve (Fed) could hike interest rates further. It is worth recalling that Fed Chair Jerome Powell said on Wednesday that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target.

This keeps the door for one more 25 bps rate-hike in September or November wide open and remains supportive of a further rise in the US Treasury bond yields. In fact, the yield on the yield on the benchmark 10-year US government bond climbs back above the 4.0% threshold and continues to underpin the Greenback. Adding to this, the worsening US-China relations overshadow the stronger Australian CPI print released on Thursday and drive flows away from the China-proxy Aussie. This, along with technical selling below the 200-day Simple Moving Average (SMA) contributes to the AUD/USD pair's downward trajectory.

That said, it will still be prudent to wait for some follow-through selling and acceptance below the 0.6600 mark before traders start positioning for an extension of the recent rejection slide from the 0.6900 neighbourhood. Market participants now look to the release of the US Core PCE Price Index - the Fed's preferred inflation gauge - for a fresh impetus later during the early North American session. The data might influence market expectations about the Fed's next policy move, which, along with the broader risk sentiment, should drive the USD demand and produce short-term trading opportunities around the AUD/USD pair.

Technical levels to watch