AUD/USD trades with modest losses, holds above mid-0.7700s

• AUD/USD failed to build on the previous day’s solid rebound from the 0.7700 round-figure.
• Suspension of Chinese-Australian economic dialogue continued weighing on the aussie.
• A modest uptick in the US bond yields extended some support to the USD ahead of NFP.

The AUD/USD pair edged lower heading into the European session and was last seen hovering near daily lows, just above mid-0.7700s.

The pair struggled to capitalize on the previous day's solid rebound of around 85-90 pips from the 0.7700 level and witnessed a modest pullback on the last trading day of the week. Signs of strained relations between China and Australia acted as a headwind for the aussie. It is worth reporting that China on Thursday indefinitely suspended all activity under a China-Australia Strategic Economic Dialogue.

On the other hand, the US dollar found some support from a modest pickup in the US Treasury bond yields. This was seen as another factor that exerted some pressure on the AUD/USD pair. The USD uptick, however, lacked any bullish conviction amid expectations that the Fed will keep interest rates low for a longer period. This, in turn, might help limit any further losses for the major ahead of the US monthly jobs data.

Economists anticipate another blockbuster NFP print from the US, showing that the economy added nearly one million jobs in April. Investors have been pricing in the prospects for a relatively faster US economic recovery from the pandemic amid the ultra-lose monetary/fiscal policies and the impressive pace of vaccinations, suggesting that upbeat jobs data alone may not be the source of any meaningful USD strength.

The fundamental backdrop points to further near-term USD weakness and favours the AUD/USD bulls. Hence, any subsequent dip might continue to attract some dip-buying near the 0.7700 mark. This should now act as a key pivotal point for short-term traders and help investors to determine the pair's next leg of a directional move.

Technical levels to watch