AUD/USD sits near daily high around 0.6535 on weaker USD, risk-off mood could cap gains

• AUD/USD attracts some buyers on Thursday and recovers further from the YTD low.
• The upbeat Chinese data and hawkish RBA expectations underpin the Australian Dollar.
• Reduced bets for another Fed rate hike in June weigh on the USD and further lend support.
• The risk-off impulse might cap any further appreciating move for the risk-sensitive Aussie.

The AUD/USD pair gains positive traction on Thursday and builds on the previous day's late recovery from the 0.6460-0.6455 region, or its lowest level since November 2022. The pair sticks to its intraday gains through the early North American session and is currently placed near the top end of its daily trading range, around the 0.6530-0.6535 region.

A private survey showed that China’s manufacturing sector unexpectedly registered modest growth in May. Apart from this, expectations that the Reserve Bank of Australia (RBA) could tighten its monetary policy further act as a tailwind for the Aussie. In fact, RBA Governor Philip Lowe had warned on Wednesday that sticky prices could invite more rate hikes by the central bank, which was followed by the release of stronger domestic consumer inflation figures. This, along with a modest US Dollar (USD) weakness, provides a goodish lift to the AUD/USD pair.

The USD attracts fresh supply following an early uptick and retreats further from its highest level since mid-March touched on Wednesday amid diminishing odds for another 25 bps rate hike by the Federal Reserve (Fed). It is worth recalling that a duo of FOMC members on Wednesday showed a willingness to pause interest rate hikes this month. This, in turn, triggers a steep intraday decline in the US Treasury bond yields, which exerts some downward pressure on the Greenback and remains supportive of the bid tone surrounding the AUD/USD pair.

The USD bulls, meanwhile, seem rather unimpressed by the better-than-expected release of the US ADP report, showing that private-sector employers added 278K jobs in May as compared to the 170K anticipated and the 296 in the previous month. That said, the risk-off impulse - amid worries about a global economic slowdown, particularly in China - could benefit the safe-haven buck and act as a headwind for the risk-sensitive Australian Dollar (AUD). This, in turn, warrants some caution for bullish traders and positioning for any further appreciating move.

Technical levels to watch