AUD/USD hangs near one-month low, bears flirt with 100-day SMA around mid-0.6600s

• AUD/USD drops to a nearly one-month low and is pressured by a combination of factors.
• The dovish RBA minutes, along with the risk-off mood, weigh on the risk-sensitive Aussie.
• A weaker USD lends support, though the bias now seems tilted in favour of bearish traders.

The AUD/USD pair comes under heavy selling following an early uptick to the 0.6745 area and dives to a nearly one-month low on Tuesday. Spot prices, however, manage to rebound a few pips and hold steady around mid-0.6600s during the early European session.

The Australian Dollar started losing ground after the Reserve Bank of Australia (RBA) minutes showed that policymakers considered leaving interest rates unchanged at the December meeting. Apart from this, the Bank of Japan-inspired slump in the AUD/JPY cross, along with an extended sell-off in the equity markets, contribute to driving flows away from the risk-sensitive Aussie. That said, a weaker US Dollar helps limit the downside for the AUD/USD pair, at least for the time being.

The intraday USD downtick, meanwhile, could be attributed to aggressive buying around the Japanese Yen, though a combination of factors should help limit the downside. Worries that a surge in COVID-19 cases in China could delay a broader reopening in the country overshadows the optimism over the easing of strict lockdown measures. This, along with a more hawkish commentary by the Fed, should offer support to the safe-haven buck and cap any attempted recovery for the AUD/USD pair.

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 increases in borrowing costs by the end of 2023. This, in turn, pushes the US Treasury bond yields and favours the USD bulls, suggesting that the path of least resistance for the AUD/USD pair is to the downside. Moreover, a break below the 100-day SMA support adds credence to the negative outlook for spot prices.

Moving ahead, there isn't any major market-moving economic data due for release from the US on Tuesday. Hence, the US bond yields, along with the broader risk sentiment, will play a key role in influencing the USD price dynamics and provide some impetus to the AUD/USD pair. Apart from this, the COVID-19 situation in China should allow traders to grab short-term opportunities.

Technical levels to watch