AUD/USD recovers early lost ground to its lowest level since July 14, lacks follow-through

• AUD/USD stages an intraday bounce from sub-0.6700 levels at the level of a major trend line.
• Retreating US bond yields force the USD to consolidate its recent gains to a two-decade high.
• A positive risk tone also undermines the bucks and offers support to the risk-sensitive aussie.

The AUD/USD pair recovers its intraday losses to sub-0.6700 levels and climbs to the top end of its daily range during the first half of the European session. The pair is currently trading around the 0.6730-0.6735 region, though any meaningful recovery still seems elusive.

The US dollar now seems to have entered a bullish consolidation phase amid a modest pullback in the US Treasury bond yields. This, along with a positive risk tone undermines the safe-haven greenback and offers some support to the risk-sensitive aussie. That said, growing worries about a deeper economic downturn should keep a lid on any optimistic move in the markets. Apart from this, hawkish Fed expectations might continue to act as a tailwind for the buck and cap any attempted recovery for the AUD/USD pair.

Investors seem convinced that the US central bank will tighten its monetary policy more aggressively to tame inflation and have been pricing in a 75 bps rate hike at the September meeting. Moreover, the prospects for rapid interest rate hikes, along with the economic headwinds stemming from fresh COVID-19 curbs in China and the ongoing war in Ukraine, have been fueling recession fears. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside and attempted recovery could get sold into.

Technically, the pair has been in a medium-term downtrend which began at the start of August and so the bias remains to the downside, despite looking a little over extended. Bullish day traders may have capitalized on the bounce off of the major trend line connecting the April and June 2022 highs touched earlier today, but whether and for how long this key support level will hold remains in doubt, especially given the bearish backdrop. The YTD lows at 0.6670 are the next target to the downside and also likely to offer some temporary pushback. A slide below there, however, would open up the chart ripe for a bearish field day. 

There isn't any major market-moving economic data due for release from the US on Wednesday. Hence, the focus will be on speeches by Fed officials later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, traders might take cues from the broader risk sentiment to grab short-term opportunities around the major.

Technical levels to watch