AUD/USD recovers early lost ground to YTD low, US data/Powell's testimony eyed

• AUD/USD staged a goodish intraday rebound from sub-0.7100 levels amid weaker USD.
• The risk-off impulse, a more dovish RBA could cap gains for the perceived riskier aussie.
• Investors now look forward to the US data/Powell’s testimony for some trading impetus.

The AUD/USD pair built on its intraday recovery from YTD low and climbed to the top end of its daily trading range, closer to mid-0.7100s heading into the North American session.

Having shown some resilience below the 0.7100 mark, the AUD/USD pair witnessed a turnaround from the lowest level since November 2020 amid a broad-based US dollar weakness. The developments surrounding the coronavirus saga forced investors to push back their expectations about the likely timing when the Fed would begin tightening its monetary policy. This, in turn, undermined the greenback and prompted some short-covering move around the major.

In fact, the money markets now indicate a 25 bps rate hike in September 2022 as against July 2022 already priced in. This, along with the global flight to safety, triggered a steep decline in the US bond yields, which was seen as another factor that weighed heavily on the greenback. That said, the risk-off impulse – as depicted by a sharp fall in the equity markets – might keep a lid on any further gains for the perceived riskier Australian dollar.

Growing market worries about the potential economic fallout from the spread of the new coronavirus variant took its toll on the global risk sentiment. The mood deteriorated further after The chief executive of drugmaker Moderna warned that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19. This, along with a more dovish stance by the Reserve Bank of Australia, could act as a headwind for the AUD/USD pair.

The fundamental backdrop still seems tilted in favour of bearish traders, warranting some caution for bullish traders. Hence, it will be prudent to wait for a strong follow-through buying beyond the 0.7155-60 immediate hurdle before confirming that the AUD/USD pair might have formed a near-term bottom. Next on tap will be the US economic docket, featuring the release of Chicago PMI and the Conference Board's Consumer Confidence Index.

The key focus, however, will be on Fed Chair Jerome Powell's testimony before the Senate Banking Committee. Powell's remarks will influence market expectations about the Fed's near-term policy outlook and drive the USD demand. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the AUD/USD pair.

Technical levels to watch