AUD/USD remains on the defensive around 0.7300 mark, just below two-week tops

• The worsening COVID-19 situation in Australia acted as a headwind for the AUD/USD pair.
• A generally positive risk tone, softer USD extended some support and helped limit any slide.

The AUD/USD pair refreshed daily lows in the last hour, albeit recovered few pips thereafter and was last seen trading just below the 0.7300 mark.

The pair struggled to capitalize on Friday's strong gains and an early uptick to near two-week tops, instead witnessed a modest pullback from the 0.7315-20 region on the first day of a new week. The worsening COVID-19 situation in Australia acted as a headwind for the AUD/USD pair, though a combination of factors helped limit any meaningful slide.

In fact, Australia’s most populous state New South Wales, the epicentre of its current COVID-19 outbreak, reported a record 1,290 new cases on Monday. Adding to this, daily infections in Australia’s second-most populous state, Victoria, reached the highest in a year, forcing Premier Daniel Andrews to extend lockdown measures beyond September 2.

The downside, however, remains cushioned amid a subdued US dollar demand, undermined by Fed Chair Jerome Powell's comments at the Jackson Hole Symposium. During the highly anticipated speech, Powell downplayed speculations for an earlier than expected lift-off and reassured the market that the Fed is in no hurry to raise interest rates.

The market was quick to react and dragged the yield on the benchmark 10-year US government bond back closer to the 1.30% threshold. This, along with the underlying bullish sentiment, further weighed on the safe-haven USD and should lend some support to the perceived riskier aussie, warranting some caution for aggressive bearish traders.

Market participants now look forward to the release of Pending Home Sales data from the US for some impetus later during the early North American session. Apart from this, the US bond yields will influence the USD. Traders might further take cues from the broader market risk sentiment for some short-term opportunities around the AUD/USD pair.

Technical levels to watch