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  • AUD/USD quickly recovered around 40 pips and has now moved back closer to daily tops.
  • The USD struggled to preserve intraday gains and extended some support to the major.
  • A modest pickup in the US bond yields could underpin the USD and cap gains for the pair.
  • The market focus will remain on the release of US consumer inflation figures for February.

The AUD/USD pair managed to recover a major part of its early lost ground and moved back above the 0.7700 mark during the first half of the European session.

The US dollar struggled to preserve its intraday gains, which, in turn, was seen as a key factor that assisted the pair to attract some dip-buying near the 0.7665-70 region. A turnaround in the global risk sentiment – as depicted by a solid bounce in the US equity futures – dented the greenback’s relative safe-haven status and extended some support to the perceived riskier Australian dollar.

However, a modest pickup in the US Treasury bond yields might continue to underpin the USD. Apart from this, the optimistic US economic outlook might further help limit any meaningful USD downfall and cap any meaningful upside for the AUD/USD pair. Investors remain hopeful that the successful COVID-19 vaccine rollouts and massive US fiscal spending will lead to a powerful rebound in the economy.

Meanwhile, the reflation trade has been fueling expectations for a possible uptick in US inflation and raised doubts that the Fed would maintain ultra-low interest rates for a longer period. This might further hold back investors from placing any aggressive directional bets ahead of Wednesday’s release of the US consumer inflation figures, scheduled later during the early North American session.

Given that inflation remains a hot topic, the latest US CPI figures will now play a key role in influencing the USD price dynamics ahead of next week’s FOMC monetary policy meeting. This, along with the broader market risk sentiment, might provide some impetus to the AUD/USD pair and allow traders to grab some short-term opportunities.

Technical levels to watch