AUD/USD remains depressed below 0.6900 mark, seems vulnerable near one-week low

• AUD/USD remained under some selling pressure for the second straight day on Thursday.
• Hawkish Fed expectations acted as a tailwind for the USD and dragged the major lower.
• Recession fears weighed on investors’ sentiment and undermined the risk-sensitive aussie.

The AUD/USD pair witnessed some selling for the second successive day on Thursday and dropped to over a one-week low, around the 0.6870-0.6875 region during the early part of the European session.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting economic growth. Adding to this, the disappointing release of the flash Eurozone PMI prints further fueled worries about a possible recession and continued weighing on investors' sentiment. This, in turn, was seen as a key factor that acted as a headwind for the risk-sensitive aussie.

Apart from this, a goodish pickup in the US dollar demand exerted some downward pressure on the AUD/USD pair. The prevalent caution market mood offered some support to the safe-haven greenback, which drew additional support from hawkish Fed expectations. The markets seem convinced that the Fed would stick to its aggressive policy tightening path to combat stubbornly high inflation and deliver another 75 bps at its upcoming meeting in July.

Fed Chair Jerome Powell reaffirmed market bets and said on Wednesday that the ongoing rate increases will be appropriate. During his testimony before the Senate Banking Committee, Powell added that Fed is strongly committed to bringing inflation back down and the pace of future rate increases will continue to depend on incoming data. This, in turn, favours the USD bulls and supports prospects for additional near-term losses for the AUD/USD pair.

Even from a technical perspective, acceptance below the 0.6900 round-figure mark could be seen as a fresh trigger for bearish traders. Hence, a subsequent slide towards the monthly low, around mid-0.6800s, looks like a distinct possibility. The downward trajectory could further get extended towards the YTD low, around the 0.6830-0.6825 region touched in May. Next on tap will be the US macro data ahead of Powell's second day of testimony.

Thursday's US economic docket features the release of the usual Weekly Initial Jobless Claims, followed by the flash PMI prints for June later during the early North American session. Apart from this, Powell's remarks, the US bond yields and the broader market risk sentiment will influence the USD price dynamics, producing short-term opportunities around the AUD/USD pair.

Technical levels to watch