• AUD/USD stages a modest recovery from a fresh YTD trough touched earlier this Wednesday.
• Retreating US bond yields keeps the USD bulls on the defensive and lends support to the major.
• Bets for one more Fed rate hike limit the USD slide and cap the pair amid China's economic woes.

The AUD/USD pair recovers a few pips from the 0.6430-0.6425 area, or a fresh low since November 2022 touched during the Asian session on Wednesday, albeit lacks follow-through. Spot prices currently trade around mid-0.6400s, still in the red for the seventh straight day, and seem vulnerable to prolonging the recent downward trajectory witnessed over the past month or so.

A softer tone surrounding the US Treasury bond yields keeps the US Dollar (USD) bulls on the defensive below a more than two-month top touched on Monday, which, in turn, is seen lending some support to the AUD/USD pair. Apart from this, a slightly oversold Relative Strength Index (RSI) on the daily chart prompts traders to take lighten their bearish bets and contributes to the modest intraday bounce. The downside for the USD, meanwhile, remains cushioned in the wake of growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer.

It is worth mentioning that the US central bank is widely expected to pause the rate-hiking cycle at its upcoming policy meeting in September. The markets, however, are still pricing in the possibility of one more 25 bps lift-off by the end of this year and the bets were reaffirmed by the upbeat US Retail Sales data released on Tuesday, which indicated that consumer spending held up well in July. This, in turn, is likely to act as a tailwind for the US bond yields and the USD, which, along with concerns about the worsening economic conditions in China, should cap gains for the AUD/USD pair.

Another round of disappointing Chinese macro data released on Tuesday further fueled worries that the post-COVID recovery in the world's second-largest economy has slowed after a brisk start in the first quarter. Even a surprise rate cut by the People's Bank of China (PBoC) does little to boost investors' confidence, warranting some caution before placing bullish bets around the China-proxy Australian Dollar (AUD). Hence, strong follow-through buying is needed to confirm that spot prices have formed a near-term bottom and positioning for any meaningful recovery.

Market participants now look to the US economic docket, featuring the release of Building Permits, Housing Starts and Industrial Production figures later during the early North American session. This, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the FOMC meeting minutes, which will be looked upon for cues about the Fed's future rate-hike path and help determine the near-term trajectory for the Greenback.

Technical levels to watch