AUD/USD clings to modest recovery gains, around mid-0.7200s

• AUD/USD gained some traction on Monday staged a modest rebound from multi-week lows.
• A goodish pickup in the US equity futures extended support to the perceived riskier aussie.
• Hawkish Fed expectations, COVID-19 jitters underpinned the USD and should cap the upside.

The AUD/USD pair edged higher heading into the European session and climbed back above mid-0.7300s, or a fresh daily top in the last hour.

Having found some support near the 0.7325 area, the AUD/USD pair gained some positive traction on Monday and recovered a part of the previous session's losses to the lowest level since October 6. The uptick was sponsored by a goodish rebound in the US equity futures and seemed rather unaffected by the prevalent bullish sentiment surrounding the US dollar. That said, the upside is likely to remain limited amid the return of COVID-19 restrictions in Europe.

Austria said that it would be the first country in Western Europe to reimpose a full lockdown to tackle rising infections and Germany also warned that it may follow suit. This, along with hawkish Fed expectations, should continue to act as a tailwind for the safe-haven greenback and cap gains for the AUD/USD pair. This, in turn, warrants some caution before confirming that the recent downfall has run its course and placing aggressive bullish bets.

In fact, the markets have been pricing in the possibility for an eventual Fed rate hike move by July 2022 and the Fed funds futures indicate a high likelihood of another raise by November amid rising inflationary pressures. The speculations were further fueled by Fed Governor Christopher Waller's comments, saying that the US central bank should speed up the pace of tapering to give more leeway to raise interest rates.

Moving ahead, Monday's US economic docket features the only release of Existing Home Sales later during the early North American session. This, along with the US bond yields, might 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