AUD/USD pares intraday losses amid weaker USD, down a little around 0.6700 mark

• AUD/USD edges lower for the second successive day, though lacks follow-through selling.
• China’s COVID-19 weigh on investors’ sentiment and undermines the risk-sensitive Aussie.
• The USD remains depressed amid bets for less aggressive Fed rate hikes and offer support.

The AUD/USD pair opens with a modest bearish gap on the first day of a new week and remains depressed through the early North American session. The pair, however, rebounds a few pips from a three-day low and now seems to have stabilized around the 0.6700 round-figure mark.

The global risk sentiment takes a hit amid the worsening COVID-19 situation in China and drives flows away from the perceived riskier Australian Dollar. In fact, China reported a record-high number of daily infections on Saturday. Moreover, the public discontent and widespread protests over the Chinese government's zero-COVID policy raise concerns about a further slowdown in economic activity. This, in turn, triggers a fresh wave of the risk-aversion trade, though the emergence of heavy US Dollar selling helps limit the downside for the AUD/USD pair.

The November FOMC meeting minutes released last week cemented market bets for a relatively smaller 50 bps rate hike by the US central bank in December. This, along with the flight to safety, contributes to the ongoing downfall in the US Treasury bond yields and drags the USD back closer to the monthly low. The fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has topped out. Moreover, absent relevant market-moving economic releases further warrant some caution for aggressive bearish traders.

Market participants now look for speeches by influential FOMC members - St. Louis Fed President James Bullard and New York Fed President John Williams. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the AUD/USD pair. The focus, however, will remain on this week's important US macro data, including the closely-watched monthly jobs report (NFP) and fresh developments in China.

Technical levels to watch