• AUD/USD stages a goodish bounce from over a one-week low touched earlier this Thursday.
• An unexpected drop in the Australian unemployment rate offers some support to the aussie.
• A modest USD pullback further provides a lift amid a goodish recovery in the risk sentiment.

The AUD/USD pair reverses an intraday dip to sub-0.6900 levels and stages a goodish bounce from a one-and-half-week low touched earlier this Thursday. The pair prolongs its recovery move through the first half of the European session and touches a fresh daily high, around the 0.6970 region in the last hour.

The Australian dollar draws some support from an unexpected fall in the domestic unemployment rate to a 48-year low level of 3.4% in July. Apart from this, a positive turnaround in the global risk sentiment triggers a modest US dollar pullback from a fresh monthly high and benefits the risk-sensitive aussie. That said, any meaningful positive move still seems elusive, warranting caution for aggressive bullish traders and positioning for any further gains.

The surprise downtick in the Australian jobless rate was sponsored by a decline in the participation rate. Moreover, the economy shed 40.9K jobs during the reported month, missing expectations for an addition of 25K by a big margin. This comes on the back of softer wage growth data on Wednesday, which could force the Reserve Bank of Australia to be more flexible in its policy tightening cycle and act as a headwind for the domestic currency.

Meanwhile, growing worries about a global economic downturn should keep a lid on any optimistic move in the markets. Furthermore, expectations that the Fed would stick to its policy tightening path support prospects for the emergence of some USD dip-buying. The bets were reaffirmed by the minutes of the July 26-27 FOMC meeting, which indicated that policymakers would not consider pulling back on interest rate hikes until inflation came down substantially.

The hawkish Fed expectations remain supportive of elevated US Treasury bond yields, which further favours the USD bulls. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and any subsequent move up might still be seen as a selling opportunity. Traders now look forward to the US economic docket - featuring the Philly Fed Manufacturing Index, the usual Weekly Initial Jobless Claim and Existing Home Sales data.

Technical levels to watch