AUD/USD pares intraday gains amid a modest USD rebound, holds steady above 0.6700

• AUD/USD attracts some buying on Monday, albeit the intraday uptick lacks follow-through.
• The Fed’s hawkish outlook, recession fears underpin the USD and cap the upside for the pair.
• The fundamental backdrop warrants some caution before positioning for any further gains.

The AUD/USD pair defends the 100-day SMA support and gains some positive traction on the first day of a new week. The pair, however, trims a part of its modest intraday gains and retreats to the 0.6700 mark during the early North American session.

A combination of supporting factors assists the US Dollar to attract some dip-buying on Monday, which, in turn, acts as a headwind for the AUD/USD pair. Despite the easing of strict COVID-19 curbs in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, keeps a lid on any optimistic move in the markets and offers some support to the safe-haven buck. Furthermore, a more hawkish commentary by the US Federal Reserve last week helps limit a modest intraday USD downtick.

It is worth recalling that the US central bank indicated that it will continue to raise rates to crush inflation. Furthermore, policymakers projected at least an additional 75 bps of increases in borrowing costs by the end of 2023, scotching expectations of pivot into rate cuts. This, in turn, pushes the US Treasury bond yields higher and continues to act as a tailwind for the Greenback. In the absence of any relevant macroeconomic data, the fundamental backdrop favours the USD bulls and warrants some caution before positioning for a further appreciating move for the AUD/USD pair.

Moving ahead, the focus now shifts to this week's release of the final US Q3 GDP print and the core PCE Price Index - the Fed's preferred inflation gauge. In the meantime, the US bond yields will play a key role in influencing the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will also take cues from the broader risk sentiment and COVID-19 situation in China to grab short-term opportunities around the risk-sensitive Aussie.

Technical levels to watch