AUD/USD trades with modest gains around 0.6700, upside seems capped amid stronger USD

• AUD/USD catches some bids on the first day of a new week, though lacks follow-through.
• Bets for another 25 bps Fed rate hike underpin the USD and act as a headwind for the pair.
• A positive risk tone caps the safe-haven buck and lends support to the risk-sensitive Aussie.

The AUD/USD pair attracts some buying on the first day of a new week and stalls Friday's rejection slide from the 0.6800 mark, or the 100-day Simple Moving Average (SMA). Spot prices stick to a mildly positive tone through the mid-European session, albeit seem to struggle to capitalize on the move and lack bullish conviction.

The US Dollar(USD) gains some positive traction for the second successive day and moves further away from a one-year low touched on Friday, which, in turn, acts as a headwind for the AUD/USD pair. Federal Reserve (Fed) Governor Christopher Waller on Friday called for further rate hikes and said that the job was still not done as inflation remains far too high. Adding to this, the University of Michigan's preliminary report showed that one-year inflation expectations rose to 4.6% from 3.6% in March and lifted bets for another 25 bps lift-off at the next FOMC policy meeting in May. This remains supportive of elevated US Treasury bond yields and continues to underpin the Greenback.

Market participants, however, still seem convinced that the Fed will pause its rate-hiking cycle, sooner rather than later. This, along with a generally positive tone around the equity markets, holds back traders from placing aggressive bullish bets around the safe-haven buck and lends support to the risk-sensitive Aussie. The mixed fundamental backdrop makes it prudent to wait for strong follow-through movement in either direction before positioning for a firm intraday direction. Investors also seem reluctant ahead of the release of the minutes of the latest Reserve Bank of Australia (RBA) meeting and Chinese data dump on Tuesday amid signs that the recovery in the world's second-largest economy is losing steam.

In the meantime, the US economic docket, featuring the release of the Empire State Manufacturing Index, will be looked upon for short-term trading impetus around the AUD/USD pair. Apart from this, the US bond yields, along with the broader market risk sentiment, might influence the USD price dynamics and contribute to producing short-term opportunities.

Technical levels to watch