AUD/USD clings to modest recovery gains, remains below 0.7300 mark

• AUD/USD staged a goodish intraday recovery from six-week lows touched earlier this Thursday.
• Retreating US bond yields led to some follow-through USD profit-taking and extended support.
• Hawkish Fed expectations should act as a tailwind for the USD and cap the upside for the major.

The AUD/USD pair built on its recovery move from six-week lows and climbed to the 0.7300 neighbourhood during the early European session, though lacked follow-through.

The pair found some support near the lower end of a near three-month-old ascending channel and staged a modest rebound from mid-0.7200s, or the lowest level since October 6 touched earlier this Thursday. The uptick allowed the AUD/USD pair to stall this week's rejection slide from 100-day SMA and was sponsored by some follow-through US dollar profit-taking slide.

Given the recent strong runup to a 16-month peak, retreating US Treasury bond yields turned out to be a key factor that prompted some USD long-unwinding trade for the second successive day. Apart from this, stable performance in the equity markets acted as a tailwind for the perceived riskier aussie and contributed to the AUD/USD pair's bounce of around 45-50 pips.

That said, any meaningful recovery still seems elusive amid growing acceptance that the Fed would be forced to tighten its monetary policy sooner rather than later to contain stubbornly high inflation. The markets have priced in the possibility of an eventual Fed rate hike move by July 2022 and the Fed funds futures indicate a high likelihood of another raise by November.

On the other hand, the RBA has maintained its dovish stance in an attempt to push back expectations for a rate hike next year. The divergence in monetary policy stance between the RBA and the Fed should hold back bullish traders from placing aggressive bets. This might further collaborate to keep a lid on any strong positive move for the AUD/USD pair, at least for the time being.

Hence, any subsequent strength might still be seen as a selling opportunity and the attempted recovery runs the risk of fizzling out rather quickly. Market participants now look forward to the US economic docket, featuring the releases of the Philly Fed Manufacturing Index and the usual Weekly Initial Jobless Claims later during the early North American session.

This, along with the US bond yields and a scheduled speech by New York Fed President John Williams, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the major.

Technical levels to watch