AUD/USD bounces off one-week low, finds some support near 0.6700 amid weaker USD

• AUD/USD reverses an early European session dip to a one-week low amid a softer USD.
• A modest downtick in the US bond yields, a positive risk tone weigh on the greenback.
• Bets for more aggressive Fed rate hikes favour the USD bulls and should cap the pair.

The AUD/USD pair finds some support near the 0.6700 mark on Wednesday and attracts some buying in the vicinity of the monthly low. Spot prices trade with a mild positive bias around the 0.6735-0.6740 region through the early European session, though the near-term bias remains tilted firmly in favour of bearish traders.

The USD struggles to capitalize on the previous day's massive rally amid a modest downtick in the US Treasury bond yields. Apart from this, signs of stability in the financial markets further seem to exert downward pressure on the safe-haven greenback and offer some support to the risk-sensitive aussie. That said, a combination of factors should continue to act as a tailwind for the buck and cap any meaningful gains for the AUD/USD pair.

The stronger US consumer inflation data all but reaffirmed expectations that the Federal Reserve will keep raising interest rates at a faster pace. In fact, the markets have started pricing in the possibility of a full 1% rate hike at the next FOMC meeting on September 20-21 and another supersized 75 bps increase in November. This, in turn, should act as a tailwind for the US bond yields and the USD, warranting caution for the AUD/USD bulls.

The prospects for a more aggressive policy tightening by the Fed, fresh COVID-19 curbs in China and the protracted Russia-Ukraine war have been fueling recession fears. This should keep a lid on any optimism in the markets and contribute to limiting the downside for the buck, suggesting that the path of least resistance for the AUD/USD pair is to the downside.

Market participants now look forward to the US Producer Price Index (PPI), due for release later during the early North American session. This, along with the US bond yields, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch