AUD/USD Price Analysis: Recovers early lost ground to over two-year low, not out of the woods yet

• A combination of factors assists AUD/USD to rebound from over a two-year low.
• Retreating US bond yields prompts some USD profit-taking and offers support.
• A positive turnaround in the risk sentiment also benefits the risk-sensitive aussie.

The AUD/USD pair stages a goodish recovery from its lowest level since April 2020 touched earlier this Wednesday, albeit lacks bullish conviction. The pair is currently placed around the 0.6425-0.6430 area and remains at the mercy of the US dollar price dynamics.

The spillover effect from the Bank of England's intervention to prop up the gilt market triggers a sharp fall in the US Treasury bond yields. This, along with a positive turnaround in the global risk sentiment, forces the safe-haven USD to trim a part of its intraday gains to a new 20-year peak and benefits the risk-sensitive aussie.

That said, growing worries about a deeper 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, bets that the Fed will stick to its aggressive monetary policy tightening path continues to act as a tailwind for the buck and caps the AUD/USD pair.

From a technical perspective, the downfall on the first day of the week confirmed a bearish breakdown below downward sloping channel support extending from May. The said support breakpoint, around the 0.6500 psychological mark, should now act as a pivotal point. Any subsequent move up might face hurdle near the weekly high, around the 0.6535-0.6540 area.

A sustained strength beyond the latter could trigger a short-covering move and allow the AUD/USD pair to aim back to reclaim the 0.6600 round-figure mark. Some follow-through buying will suggest that spot prices have formed a bottom and pave the way for an extension of the recovery towards the next relevant barrier near the 0.6655-0.6670 supply zone.

On the flip side, weakness back below the 0.6400 mark will negate prospects for any meaningful upside and make the AUD/USD pair vulnerable to retesting the YTD low, around the 0.6365 region. The downward trajectory could further get extended towards the 0.6300 round figure, though the oversold RSI (14) on the daily chart warrants caution for bearish traders.

AUD/USD daily chart

Key levels to watch