AUD/USD recovers early lost ground to multi-week low, flat-lined near mid-0.7400s

• AUD/USD dropped to a near three-week low on Monday, though lacked follow-through selling.
• The Ukraine crisis acted as a tailwind for commodities and benefitted the resources-linked aussie.
• The Fed’s hawkish outlook, surging US bond yields underpinned the USD and should cap the upside.

The AUD/USD pair recovered its early lost ground to a near three-week low and was last seen trading in the neutral territory, just below the mid-0.7400s heading into the European session.

The pair extended last week's sharp retracement slide from the 0.7660 area, or the highest level since June 2021 and witnessed some selling during the early part of trading on Monday. China's consumer inflation and factory-gate rose faster than expected in March, dashing hopes for aggressive policy easing by the People’s Bank of China (PBOC). This, in turn, acted as a headwind for the China-proxy Australian dollar amid the underlying bullish sentiment surrounding the US dollar.

The markets seem convinced that the Fed will tighten its monetary policy at a faster pace to curb soaring inflation. This, along with worries that the recent surge in commodity prices would put upward pressure on the already high consumer inflation, pushed the US Treasury bond yields to a fresh multi-year peak. Apart from this, a generally weaker tone around the equity markets assisted the safe-haven USD to stand tall near its highest level since May 2020 touched on Friday.

Against the backdrop of the Fed's hawkish outlook, concerns about the economic fallout from the war in Ukraine tempered investors' appetite for perceived riskier assets. In the latest developments, Russian forces continued shelling targets in eastern Ukraine on Sunday and destroyed the airport in the city of Dnipro. Moreover, Russia's defence ministry said that high-precision missiles had destroyed the headquarters of Ukraine's Dnipro battalion in the town of Zvonetsky.

The combination of factors dragged the AUD/USD pair to the lowest level since March 22, though rising commodity prices extended some support to the resources-linked Australian dollar. This, in turn, assisted the AUD/USD pair to attract some buying near the 0.7420-0.7415 region. That said, any meaningful recovery seems elusive as investors might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the US consumer inflation figures on Tuesday.

In the meantime, the US bond yields will continue to play a key role in influencing the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the incoming geopolitical headlines, which should drive the broader market risk sentiment and allow traders to grab some short-term opportunities around the major.

Technical levels to watch