• AUDUSD remains on the defensive amid a modest USD bounce from a nearly three-month low.
• Hawkish remarks by Fed’s Waller push the US bond yields higher and revive the USD demand.
• Bets for smaller rate hikes by the Fed act as a headwind for the buck and limit losses for the pair.

The AUDUSD pair fails to capitalize on its modest intraday bounce from the 0.6665 area and remains on the defensive through the first half of the European session. The pair is currently trading around the 0.6685-0.6680 region, with bulls still awaiting a sustained strength beyond the 100-day SMA resistance.

A combination of factors assists the US Dollar to gain some positive traction on the first day of a new week, which, in turn, is seen acting as a headwind for the AUDUSD pair. The US Treasury bond yields edge up in reaction to more hawkish remarks by Fed Governor Christopher Waller on Sunday. This, along with a softer tone around the equity markets, benefits the safe-haven buck and exerts some downward pressure on the risk-sensitive Aussie.

During a conversation in Sydney, Australia, Waller noted that markets have overreacted to the softer-than-expected October consumer price inflation data last week. Waller added that the Fed was not softening its fight against inflation and that it will take a string of soft CPI reports for the US central bank to take its foot off the brakes. That said, expectations that the Fed will slow the pace of its policy tightening seem to cap the USD.

Furthermore, the optimism over an eventual scaling back of COVID-19 measures in China offers support to the China-proxy Australian Dollar and limits losses for the AUDUSD pair. Hence, the subdued price move might be categorized as a bullish consolidation phase, suggesting that any corrective pullback might still be seen as a buying opportunity. This, in turn, warrants caution for bearish traders in the absence of any relevant market-moving economic releases from the US.

Technical levels to watch