• AUD/USD bounced off over a two-year low touched on Tuesday amid a modest USD pullback.
• A further decline in the US bond yields prompted some USD profit-taking near a 20-year peak.
• Aggressive Fed rate hike bets, recession fears should limit the USD losses and cap the major.

The AUD/USD pair staged a modest bounce from over a two-year low touched on Tuesday and steadily climbed to mid-0.6700s during the early European session.

The global flight to safety continued dragging the US Treasury bond yields lower, which forced the US dollar to surrender its intraday gains to a fresh two-decade high. This, in turn, was seen as a key factor that assisted the AUD/USD pair to attract some buying in the vicinity of the 0.6700 round-figure mark. That said, the attempted recovery is more likely to remain short-lived and runs the risk of fizzling out rather quickly.

The prospects for a more aggressive policy tightening by the Fed, along with the prevalent risk-off mood, should limit any meaningful USD corrective pullback and cap the AUD/USD pair. Investors seem convinced that the Fed would stick to a faster rate hike path to curb soaring inflation. The bets were reaffirmed by last week's FOMC minutes, which emphasized the need to fight inflation even if it results in an economic slowdown.

Furthermore, rapidly rising interest rates, along with a prolonged Russia-Ukraine and fresh COVID-19 lockdowns in China, have been fueling recession fears and continued weighing on investors' sentiment. This was evident from an extended selloff in the equity markets, which could further lend support to the safe-haven greenback. Apart from this, the recent slump in commodity prices should act as a headwind for the resources-linked aussie.

Hence, it will be prudent to wait for strong follow-through buying before confirming that the AUD/USD pair has formed a near-term bottom and positioning for any further gains ahead of the key macro data. The latest US consumer inflation figures are due on Wednesday and will influence the USD price dynamics. Traders will further take cues from Thursday's release of Australian employment details before placing fresh directional bets.

In the meantime, the US bond yields might drive the USD demand amid absent relevant market-moving economic releases from the US on Tuesday. Apart from this, the broader market risk sentiment should provide some impetus to the AUD/USD pair and allow traders to grab short-term opportunities.

Technical levels to watch