AUD/USD remains depressed near 0.6700 mark amid stronger USD, seems vulnerable

• A combination of factors prompts fresh selling around AUD/USD on Tuesday.
• Aggressive Fed rate hike bets, elevated US bond yields revive the USD demand.
• Recession fears also underpin the buck and weigh on the risk-sensitive aussie.

The AUD/USD pair attracts fresh selling in the vicinity of mid-0.6700s, or a three-day high touched earlier this Tuesday and continues losing ground through the early North American session. The pair is currently placed near the lower end of its daily trading range, around the 0.6700 mark, and remains well within the striking distance of its lowest level since June 2020.

The Australian dollar started weakening following the release of the Reserve Bank of Australia's (RBA) September meeting minutes. The central bank reiterated that policy was not on a pre-set path and noted that interest rates are getting closer to normal levels. The RBA further added that it sees the case for slowing the pace of rate hikes. This, along with resurgent US dollar demand, is exerting downward pressure on the AUD/USD pair.

Expectations that the Federal Reserve will stick to its aggressive rate-hiking cycle to curb stubbornly high inflation assist the greenback to rebound swiftly from a one-week low. The US central bank is expected to deliver at least a 75 bps rate hike at the end of a two-day monetary policy meeting on Wednesday. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

Apart from this, a softer risk tone - amid growing recession fears - provides an additional lift to the safe-haven buck and contributes to driving flows away from the risk-sensitive aussie. The USD sticks to its intraday gains and moves little following the release of the mixed US housing market data. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside.

Bearish traders, however, might prefer to wait for some follow-through selling below the 0.6670 region before positioning for any further depreciating move. Investors might also refrain from placing aggressive bets and prefer to move to the sidelines ahead of the key central bank event risk - the highly-anticipated FOMC decision on Wednesday.

Technical levels to watch