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The AUD/USD pair extended yesterday's steep retracement decline of more than 120 pips from the weekly high and continues to lose ground throughout Friday's Asian session. This is the third consecutive day of losses, which has pushed spot prices below 0.6700 in the last hour, verifying a breakdown below a technically significant 200-day Simple Moving Average (SMA).

The US Dollar (USD) is nearing a two-and-a-half-week high and remains well supported by Thursday's positive US macroeconomic data, which is expected to exert downward pressure on the AUD/USD pair. The US Department of Commerce reported that the world's largest economy grew at an annualised rate of 2.4% in the second quarter, exceeding expectations. In addition, the Initial Jobless Claims unexpectedly dropped to 221K during the week ending July 22, indicating a robust US economy. This increases the likelihood that the Federal Reserve (Fed) will raise interest rates further, thereby supporting the dollar.

In addition, Fed Chair Jerome Powell stated on Wednesday that the economy and labour market must continue to decelerate for inflation to return credibly to the 2% target, leaving the door open for one more 25 bps rate hike in September or November. This caused an overnight spike in US Treasury bond yields, which, along with a minor deterioration in global risk sentiment, bolsters the relative safe-haven status of the US dollar. Aside from this, the deteriorating US-China relations overshadow the Thursday publication of a stronger Australian CPI report and further contribute to outflows from the China-proxy Australian dollar.

According to the Washington Post, which cited three officials with knowledge of the situation, the White House has decided to prevent Hong Kong's top government official from attending a key economic summit in the United States this autumn. Liu Pengyu, a spokesman for the Chinese Embassy in Washington, responded that the decision violates APEC standards and represents a breach of commitment by the United States. This, coupled with Australia's disappointing Producer Price Index (PPI) and Retail Sales data, suggests that the path of least resistance for the AUD/USD pair remains to the downside and supports the likelihood of a further depreciation.

Even from a technical standpoint, a break below the extremely significant 200-day simple moving average could be viewed as a fresh catalyst for bearish traders and confirms the negative outlook. Now, market participants anticipate the release of the US Core PCE Price Index, the Fed's preferred inflation indicator, in order to take advantage of short-term trading opportunities surrounding the AUD/USD pair later in the early North American session. Nonetheless, spot prices appear poised for a second consecutive week of declines and remain at the discretion of USD price dynamics on the final trading day of the week.

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