AUD/USD clings to gains near daily high, holds steady above 0.7200 mark

• AUD/USD regained positive traction on Tuesday and recovered a part of the overnight losses.
• The risk-on mood, upbeat Chinese PMI extended some support to the perceived riskier aussie.
• Elevated US bond yields underpinned the USD and kept a lid on any further gains for the pair.

The AUD/USD pair maintained its bid tone through the first half of the European session and was last seen trading near the daily high, around the 0.7210 region.

A combination of supporting factors assisted the AUD/USD pair to regain positive traction on Tuesday and reverse a part of the previous day's retracement slide from the vicinity of 100-day SMA. Despite Omicron-driven surge in COVID-19 infections globally, hopes of steady economic recovery remained supportive of the underlying bullish sentiment. This, along with better-than-expected China's Caixin Manufacturing PMI, further boosted investors' confidence and benefitted the perceived riskier aussie.

On the other hand, the US dollar drew some support from elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond surged to 1.6420% for the first time since November 24 amid expectations for a faster policy tightening by the Fed. The money markets have fully priced in the first-rate hike by May and two more by the end of 2022. This, in turn, continued acting as a tailwind for the greenback and capped any further gains for the AUD/USD pair, at least for now.

Investors might also be reluctant to place aggressive bets, rather prefer to wait on the sidelines ahead of this week's key event/data risks. A rather busy week kicks off with the release of ISM Manufacturing PMI and JOLTS Job Openings data from the US later during the early North American session on Tuesday. The Fed is also scheduled to release the minutes of its December monetary policy meeting on Wednesday, which will be followed by the ADP report and the ISM Services PMI on Thursday.

The key focus, however, will remain on the closely watched US monthly jobs report – popularly known as NFP on Friday. This would play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the AUD/USD pair. In the meantime, traders might continue to take cues from developments surrounding the coronavirus saga. Apart from this, the US bond yields will drive the USD demand and allow traders to grab some short-term opportunities around the major.

Technical levels to watch