AUD/USD rebounds from YTD low and moves back above 0.6500, lacks follow-through

• AUD/USD bounces off its lowest level since May 2020 amid a modest intraday USD pullback.
• Recession fears, bets for aggressive Fed rate hikes to limit the USD losses and cap the major.
• Investors now look forward to speeches by FOMC members for short-term opportunities.

The AUD/USD pair stages a modest recovery from its lowest level since May 2020 set earlier this Monday, though lacks any follow-through buying. The pair seesaws between tepid gains/minor losses through the early European session and is currently placed just above the 0.6500 psychological mark.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, surrenders its intraday gains to a fresh two-decade high and offers some support to the AUD/USD pair. Speculations that the Bank of England will have to step in to stabilise the domestic currency helped the British pound to rebound swiftly following a two-day free fall. This, along with a turnaround in the risk sentiment, prompts some profit-taking around the safe-haven greenback and benefits the risk-sensitive aussie.

That said, growing worries about a deeper global economic downturn and the risk of a further escalation in the Russia-Ukraine conflict should keep a lid on any optimistic move in the markets. Apart from this, a more hawkish stance adopted by the Federal Reserve should limit any meaningful USD corrective pullback and cap the upside for the AUD/USD pair. It is worth recalling that the US central bank last week delivered another supersized rate hike and signalled large increases at its upcoming meetings to tame inflation.

The fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside. This makes it prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom. In the absence of any relevant economic data from the US, traders on Monday will take cues from speeches by influential FOMC members. This, along with the US bond yields and the broader risk sentiment, might influence the USD and provide some impetus to the AUD/USD pair.

Technical levels to watch