• AUD/USD gains some positive traction on Thursday, albeit lacks follow-through.
• A goodish pickup in the US bond yields underpins the USD and caps the upside.
• The downside seems limited as traders look to the US data for a fresh impetus.

The AUD/USD pair attracts some buyers on Thursday, albeit lacks bullish conviction and trims a part of its modest intraday gains during the early part of the European session. Spot prices currently trade around the 0.6500 psychological mark and remain well within the striking distance of the lowest level since November 2022 touched on Wednesday.

The Australian Dollar (AUD) did get a minor lift after a private survey released today showed that China’s manufacturing sector unexpectedly registered modest growth in May, raising hopes of a recovery in the world's second-largest economy. That said, official data released earlier this week had shown a sustained downturn, which, along with broad-based US Dollar (USD) strength, keeps a lid on any further gains for the AUD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, steadily climbs back closer to its highest level since mid-March touched on Wednesday amid a goodish pickup in the US Treasury bond yields. The upside for the USD, however, is likely to remain limited, at least for now, in the wake of reduced bets for another 25 bps rate hike by the Federal Reserve (Fed) at its upcoming monetary policy meeting in June.

Apart from this, expectations that the Reserve Bank of Australia (RBA) could tighten its monetary policy further could act as a tailwind for the AUD/USD pair and help limit losses. It is worth recalling that RBA Governor Philip Lowe had warned on Wednesday that sticky prices could invite more rate hikes by the central bank. This was followed by the release of stronger domestic consumer inflation figures, which might lend support to the Aussie.

Market participants now look forward to the US economic docket, featuring the ADP report on private-sector employment, the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. This, along with Fedspeaks, the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus will then shift to the release of the crucial US NFP report on Friday.

Technical levels to watch