AUD/USD: Global Economic Slowdown Putting Pressure on AUD

On Thursday, global economic slowdown concerns resurfaced after the release of mixed Chinese inflation figures and a weaker US labor market report. These developments have put downward pressure on the risk-sensitive Australian dollar (AUD). In contrast, the US dollar (USD) is consolidating the previous day's gains, reaching over a one-week high and drawing support from a slight increase in US Treasury bond yields. This added strength in the USD is contributing to further downward pressure on the AUD/USD pair. However, the downside for the pair seems limited for now.

The uncertainty surrounding the Federal Reserve's (Fed) next policy move is preventing USD bulls from making aggressive bets. While the US CPI report released earlier this week indicated some signs of easing inflationary pressure, investors are still divided over the possibility of rate cuts later this year. This situation, combined with a generally positive tone in equity markets, is keeping a lid on further gains for the safe-haven USD and lending support to the AUD/USD pair.

Moreover, the hawkish outlook of the Reserve Bank of Australia (RBA), which suggests the need for further tightening of monetary policy to ensure inflation returns to its target within a reasonable timeframe, adds a note of caution for bearish traders. Nevertheless, the AUD/USD pair is on track to end the week lower and to reverse a major part of its gains recorded over the past week or so.