AUD/USD flirts with two-month lows, around 0.7600 amid notable USD strength

• AUD/USD struggled to capitalize on upbeat aussie jobs report-led modest intraday gains.
• Hawkish Fed continued underpinning the USD and prompted fresh selling around the pair.
• The risk-off mood also collaborated to drive flows away from the perceived riskier aussie.

The AUD/USD pair dropped to fresh session lows in the last hour, with bears now looking to extend the downward trajectory further below the 0.7600 mark.

The pair gained some positive traction during the early part of the trading action on Thursday and climbed to the 0.7645 region in reaction to the blow-out Australian jobs report. In fact, the number of employed people rose sharply, by 115.2K in May as against 30K anticipated and the jobless rate unexpectedly fell to 5.1% from the 5.5% previous.

The early uptick, however, turned out to be short-lived and ran out of steam rather quickly amid sustained US dollar buying interest. The key USD Index shot to the highest level in almost two months and remained well supported by the fact that the Fed signalled that it might raise interest rates at a much faster pace than anticipated previously.

The so-called dot plot pointed to two rate hikes by the end of 2023 as against March's projection for no increase until 2024. Moreover, seven FOMC members pencilled in a rate hike or more in 2022 as compared to four in March. This was accompanied by a significant upward revision of the economic projections, which continued to underpin the buck.

Meanwhile, a softer tone surrounding the US Treasury bond yields, to a larger extent, was offset by a sharp pullback in the equity markets. This was seen as another factor that benefitted the greenback's relative safe-haven status and drove flows away from the perceived riskier aussie, dragging the AUD/USD pair to the lowest level since May 13.

Market participants now look forward to the US economic docket – featuring the release of the Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might also provide some impetus to the AUD/USD pair.

Technical levels to watch