AUD/USD clings to modest recovery gains, above mid-0.7100s

• AUD/USD staged a modest bounce from multi-month lows and snapped five days of losing streak.
• A positive risk tone undermined the safe-haven USD and benefitted the perceived riskier aussie.
• COVID-19 jitters might hold bulls from placing aggressive bets and cap the upside for the major.

The AUD/USD pair held on to its recovery gains heading into the European session and was last seen trading near daily tops, just above mid-0.7100s.

Having defended the 0.7100 mark on Friday, the AUD/USD pair staged a goodish rebound from the lowest level since November 2020 and snapped five consecutive days of the losing streak. A generally positive tone around the equity markets led to some follow-through US dollar profit-taking slide and was seen as a key factor that benefitted the perceived riskier aussie.

The worsening COVID-19 situations continued fueling worries about the potential economic fallout from the fast-spreading Delta variant. This now seems to have forced investors to push back expectations that the Fed will begin to roll back its pandemic-era stimulus. This, in turn, was seen as another factor that continued undermining the greenback on Monday.

The supporting factors, to a larger extent, helped offset weaker Australian PMI prints for August and drove the AUD/USD pair higher through the first half of the trading action on Monday. However, persistent COVID-19 jitters might hold investors from placing aggressive bullish bets, warranting some caution before confirming that the pair has bottomed out.

Market participants might also be reluctant, rather prefer to wait on the sidelines ahead of Fed Chair Jerome Powell's speech at the Jackson Hole Symposium later this week. In the meantime, Monday's release of the flash US PMIs, along with the broader market risk sentiment will be looked upon for some short-term trading opportunities around the AUD/USD pair.

Technical levels to watch