AUD/USD climbs to fresh daily high around mid-0.6900s, upside potential seems limited

• AUD/USD attracts fresh buying on Monday and recovers further from over a two-week low.
• A positive risk tone offers support to the risk-sensitive aussie amid a modest USD downtick.
• Recession fears, US-China tensions, hawkish Fed expectations could limit losses for the USD.

The AUD/USD pair builds on Friday's late bounce from the 0.6870 area, or over a two-week low, and gains some positive traction on the first day of a new week. The steady intraday ascent extends through the early European session and pushes spot prices to a fresh daily high, around mid-0.6900s in the last hour.

The upbeat Chinese trade balance data released over the weekend turns out to be a key factor offering support to the China-proxy Australian dollar. Apart from this, subdued US dollar price action act as a tailwind for the AUD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive. This, along with signs of stability in the equity markets, is undermining the safe-haven buck and driving flows towards the risk-sensitive aussie.

That said, growing worries about a global economic downturn and the US-China tension over Taiwan should keep a lid on any optimistic move in the markets. Furthermore, renewed speculations for a more aggressive policy tightening by the Fed support prospects for the emergence of some USD dip-buying. This, in turn, warrants caution before placing aggressive bullish bets around the AUD/USD pair amid absent relevant market-moving economic releases from the US on Monday.

The US monthly jobs report on Friday showed that the economy added 528K jobs in July, smashing consensus estimates by a big margin. Additional details revealed that the unemployment rate unexpectedly edged lower to 3.5% from the 3.6% in the previous. Moreover, Average Hourly Earnings also beat expectations and rose 0.5% MoM in July, suggesting a further rise in inflationary pressures and lifting bets for a 75 bps Fed rate hike move at the next policy meeting in September.

Hence, the market focus now shifts to the release of the latest US consumer inflation figures, due on Wednesday. The data would influence Fed rate hike expectations and play a key role in driving the near-term USD demand, which, in turn, should help determine the next leg of a directional move for the AUD/USD pair. In the meantime, the US remains at the mercy of the US bond yields, which, along with the broader risk sentiment, might provide some impetus to the major.

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