AUD/USD filled a small initial gap on Monday but failed to continue. The USD is weighed down by a decline in US bond rates, supporting the major. Before this week’s major events and data threats, the duo faces resistance from recession worries.

Over the early European session on Monday, the AUD/USD pair failed to profit from its slight intraday rally and maintained a defensive position just above mid-0.6700s.

Chinese government authorities over the weekend downplayed hopes for a robust comeback in the world’s second-largest economy by setting a lower-than-anticipated aim of 5% GDP growth for the current year. The Australian Dollar, a proxy for China, opens with a minor gap down; however, a softer tone around the US Dollar helps the AUD/USD pair get some buying at 0.6740. The slight decline of the US Treasury note rates is a major reason for keeping the USD bulls on the back foot on Monday.

Yet, the likelihood of more Federal Reserve policy tightening is a positive force for US bond rates and the Greenback, which in turn looks to limit the upside for the AUD/USD pair. The markets are confident that the US central bank would maintain its hawkish attitude and raise rates for an extended period to rein in inflation that has remained persistently high. In reality, the incoming US macro data showed that inflation stays the same as anticipated and suggested that the economy is holding up despite higher borrowing prices.

Several FOMC officials have also lately endorsed the argument for more significant rate increases, which has allowed for the possibility of a 50 bps lift-off at the March policy meeting. Additionally, impending recession worries support the USD bulls and indicate that the AUD/USD pair will encounter the least resistance on the downside. Before this week’s important central bank events, including the Reserve Bank of Australia (RBA) meeting and Fed Chief Jerome Powell’s two-day semi-annual congressional appearance, traders seem hesitant to put bold wagers.

This week, investors will also have to deal with the Friday publication of the closely-watched US monthly employment data, often called the NFP report. This will significantly impact the short-term USD price dynamics, providing the AUD/USD pair with new directional momentum. Spot prices are more likely to continue the present range-bound price action seen over the previous week or two and stay below a theoretically critical 200-day Simple Moving Average heading into the significant event/data concerns (SMA).