AUD/USD clings to modest gains above mid-0.7200s, lacks follow-through

• A modest USD weakness assisted AUD/USD to stage a modest bounce from multi-month lows.
• COVID-19 jitters and a softer risk tone acted as a headwind for the perceived riskier aussie.
• An uptick in the US bond yields might help limit the USD losses ahead of the FOMC minutes.

The AUD/USD pair held on to its modest recovery gains through the early European session and was last seen trading around the 0.7260 region, albeit lacked any follow-through.

The US dollar edged lower during the first half of the trading action on Wednesday and eroded a part of the previous day's strong gains amid diminishing odds for an early policy tightening by the Fed. This, in turn, was seen as a key factor that assisted the AUD/USD pair to stage a modest bounce from the 0.7235 area or the lowest level since November 2020.

The incoming US macro data indicated that the US consumer has grown more cautious in response to the latest surge in COVID-19 cases, which was reinforced by Tuesday's weaker US Retail sales figures. This, along with signs of easing inflationary pressure in the US, forced investors to scale back their expectations that the Fed will begin tapering its asset purchases.

Meanwhile, worries about the potential economic fallout from the fast-spreading Delta variant of the coronavirus continued weighing on investors' sentiment. Apart from this, a modest uptick in the US Treasury bond yields acted as a tailwind for the safe-haven USD and kept a lid on any meaningful gains for the perceived riskier aussie, at least for the time being.

Investors also seemed reluctant and preferred to wait on the sidelines ahead of Wednesday's release of the FOMC monetary policy meeting minutes, which will play a key role in influencing the near-term USD price dynamics. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the AUD/USD pair has bottomed out.

Technical levels to watch