AUD/USD struggles to find acceptance above 0.6800 mark, pares intraday recovery gains

• AUD/USD stages a modest bounce from its lowest level since May 2020, though lacks follow-through.
• Retreating US bond yields, the risk-on impulse weighs on the USD and benefits the risk-sensitive aussie.
• Aggressive Fed rate hike bets act as a tailwind for the greenback and cap the major amid recession fears.

The AUD/USD pair gains some positive traction on Tuesday and snaps a two-day losing streak to its lowest level since May 2020. The pair maintains its bid tone through the first half of the European session and is currently placed just below the 0.6500 psychological mark, up over 0.50% for the day.

Retreating US Treasury bond yields trigger a modest US dollar retracement slide from a two-decade high touched the previous day, which, in turn, is seen offering some support to the AUD/USD pair. Apart from this, the risk-on impulse - as depicted by a positive tone around the equity markets - undermines the safe-haven buck and further benefits the risk-sensitive aussie. The uptick, however, lacks bullish conviction, warranting some caution before positioning for any meaningful gains.

Growing worries about a deeper global economic downturn, along with the risk of a further escalation in the Russia-Ukraine conflict, could keep a lid on any optimistic move in the markets. Furthermore, a more hawkish stance adopted by the Federal Reserve should act as a tailwind for the buck and contribute to capping the AUD/USD pair.  It is worth recalling that the US central bank signalled last week that it will likely undertake more aggressive increases at its upcoming meetings to cap inflation.

Furthermore, a duo of FOMC members reiterated on Monday that the priority remains controlling domestic inflation. This should act as a tailwind for the US bond yields and support prospects for the emergence of some USD dip-buying, suggesting that the path of least resistance for the AUD/USD pair is to the downside. Market participants now look forward to Fed Chair Jerome Powell's speech at an event in Paris for some impetus ahead of the US macro data, due later during the early North American session.

Tuesday's US economic docket features Durable Goods Order, the Conference Board's Consumer Confidence Index, New Home Sales and the Richmond Manufacturing Index. This, along with the US bond yields, will influence the USD price dynamics and produce short-term trading opportunities around the AUD/USD pair. Traders will further take cues from the broader risk sentiment ahead of the Australian monthly Retail Sales data, scheduled during the Asian session on Wednesday.

Technical levels to watch