AUD/USD lacks firm intraday direction, flat-lines above 0.6700 amid modest USD strength

• AUD/USD lacks any firm intraday direction on Wednesday, albeit the downside seems cushioned.
• Rising US bond yields help revive the USD demand and seem to act as a headwind for the major.
• The optimism over Chinese economic recovery lends some support to the Aussie and limits losses.

The AUD/USD pair struggles to capitalize on the previous day's positive move and seesaws between tepid gains/minor losses through the early European session. The pair is currently placed just above the 0.6700 round-figure mark, nearly unchanged for the day, and remains below a technically significant 200-day Simple Moving Average (SMA).

A combination of factors assists the US Dollar (USD) to attract some intraday buying, which, in turn, is acting as a headwind for the AUD/USD pair. Speculations that the Federal Reserve (Fed) will continue raising interest rates remain supportive of the recent rally in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond and the rate-sensitive two-year US Treasury note climb to over a four-week high. This, along with a generally weaker tone around the equity markets, helps revive demand for the safe-haven Greenback and contributes to capping the upside for the perceived riskier Aussie.

That said, the uncertainty over the Fed's rate-hike path holds back the USD bulls from placing aggressive bets and lends some support to the AUD/USD pair. It is worth mentioning that several Fed officials called for more hikes and the markets have nearly priced in a 25 bps lift-off in May. The Fed funds futures, however, indicate only a small chance of another rate hike in June. Apart from this, a lower probability of a recession in Australia, along with the hawkish tone from the Reserve Bank of Australia's (RBA) April meeting minutes and the upbeat China macro data, should limit the downside for the Australian Dollar.

The aforementioned mixed fundamental backdrop, meanwhile, warrants caution for aggressive traders and before positioning for a firm near-term direction for the AUD/USD pair. In the absence of any relevant market-moving economic data from the US on Wednesday, investors will focus on the release of the Fed’s Beige Book, due later during the US session, for the central bank’s take on the state of the US economy. This, along with the US bond yields and the broader risk sentiment, should influence the USD price dynamics and allow traders to grab short-term opportunities around the AUD/USD pair.

Technical levels to watch