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

• AUD/USD scales higher for the second straight day amid the emergence of some selling.
• Retreating US bond yields, along with a positive risk tone, weigh on the safe-haven buck.
• Recession fears, hawkish Fed expectations should limit the USD losses and cap the major.

The AUD/USD pair builds on the previous day's bounce from a one-and-half-week low and gains traction for the second straight day on Thursday. The steady intraday ascent prolongs through the early European session and lifts spot prices to a fresh daily high, around the 0.6975 region.

The emergence of some US dollar selling turns out to be a key factor lending support to the AUD/USD pair. In fact, the USD, so far, has been struggling to capitalize on this week's goodish recovery from its lowest level since July 5 amid the ongoing decline in the US Treasury bond yields. Apart from this, the recent recovery in the equity markets is further undermining the safe-haven buck and offering additional support to the risk-sensitive aussie.

The USD downtick, however, is likely to remain limited in the wake of more hawkish remarks by several Fed officials this week, hinting that more interest rates are coming in the near term. Furthermore, growing recession fears, along with heightened US-China tensions caused by US House Speaker Nancy Pelosi's Taiwan trip, might keep a lid on the optimistic move in the markets. The said factors should act as a tailwind for the USD and cap gains for the AUD/USD pair.

Investors might also be reluctant to place aggressive bets and prefer to move on the sidelines ahead of the US monthly jobs data, due for release on Friday. The popularly known NFP report might influence Fed rate hike expectations and play a key role in influencing the USD price dynamics, which, in turn, would determine the next leg of a directional move for the AUD/USD pair.

In the meantime, traders on Thursday would take cues from the release of the usual Weekly Initial Jobless Claims data from the US. This, along with the US bond yields and Fedspeak, would drive the USD demand and provide some impetus to the AUD/USD pair. Apart from this, the broader market risk sentiment would also be looked upon for short-term trading opportunities.

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