AUD/USD STUMBLED TO A 7-DAY LOW BUT RECLAIMED 0.6900 AMID RISK AVERSION

AUD/USD failed to gain traction on rising US recession fears and poor Ausslie’s employment data.

US Initial Jobless Claims were better than expected, cushioning the US Dollar fall.

RBA’s odds for a rate hike lie around 60%, while 40% expects no change to its monetary policy.

AUD/USD slides for the second consecutive day, registering a new weekly low of 0.6871 due to a risk-off impulse spurred by recession worries mounting after US economic data, indeed showed the economy is slowing. Hawkish Fed commentary spooked investors, who flew to safety. At the time of writing, the AUD/USD is trading at 0.6901, below its opening price by 0.61%.

Growing concerns in the US, a headwind for the AUD/USD

The AUD/USD continues to weaken, even though the US Dollar (USD), remains offered across the board. Wednesday’s inflation data in the United States (US) cooled down, reflecting the tightening monetary conditions imposed by the US Federal Reserve (Fed). However, consumers are feeling the effects, as Retail Sales plunged on a monthly basis, while Industrial Production (IP) fell for the second straight month.

Thursday’s US economic docket witnessed unemployment claims rising by 190,000, 24,000 below expectations, while the Continuing Claims edged lower. At the same time, Housing Starts and Building Permits missed estimates, while the Philadelphia Fed Manufacturing Index, although in contractionary territory at -8.9, improved compared to November’s -13.7 reading.

The US Dollar Index, a measure of the buck against a basket of peers, extended its losses for two straight days, sliding 0.24% to 102.165. Nevertheless, a late recovery in US Treasury yields, namely the 10-year bond rate, climbs four bps at 3.411%, a headwind for the AUD/USD.

On the Australian side, employment figures unexpectedly fell in December, a headwind for the Aussie (AUD). Money market futures imply a 60% probability for the Reserve Bank of Australia (RBA) to lift rates in February, but there’s also a 40% chance the RBA will pause, given rates have risen by 300 bps.

What to watch?

An absent Australian economic docket will leave AUD/USD traders leaning on US Dollar dynamics. The US calendar will feature Existing Home Sales alongside Fed speaking.