AUD/USD sticks to recovery gains, just above 0.6900 as USD retreats from two-decade high

• AUD/USD staged a goodish rebound from over a one-month low and snapped a five-day losing streak.
• Modest USD pullback from a two-decade higher prompted some short-covering around the major.
• Aggressive Fed rate hike bets should act as a tailwind for the USD and keep a lid on any further gains.

The AUD/USD pair witnessed a short-covering bounce on Wednesday and for now, seems to have snapped a five-day losing streak to over a one-month low. The pair held on to its intraday recovery gains through the early European session and was last seen trading near the daily high, just above the 0.6900 round-figure mark.

Following the recent bullish run to a two-decade high, the US dollar witnessed some profit-taking on Wednesday amid a softer tone surrounding the US Treasury bond yields. Apart from this, signs of stability in the financial markets further undermined the greenback's safe-haven demand and offered some support to the risk-sensitive aussie.

That said, any meaningful recovery still seems elusive amid expectations that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation. In fact, Fed fund futures indicate rising odds of a jumbo 75 bps rate hike at the conclusion of a two-day FOMC monetary policy meeting on Wednesday and another 75 bps hike in July.

The prospects for a more aggressive move by the Fed should act as a tailwind for the US bond yields and favours the USD bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom. Nevertheless, the focus remains glued to the FOMC decision, due later during the US session.

Heading into the key event risk, the US monthly Retail Sales figures, scheduled for release later during the early North American session, might do little to influence the USD. That said, the broader market risk sentiment might still provide some impetus to the AUD/USD pair and allow traders to grab short-term opportunities.

Technical levels to watch