AUD/USD drops to one-week low, down over 0.50% for the day amid pickup in USD demand

• AUD/USD drops to a one-week low on Wednesday and is pressured by a combination of factors.
• China’s economic woes weigh on the Aussie and weigh on the pair amid resurgent USD demand.
• Bets for a less hawkish Fed lead to a steep fall in the US bond yields and might cap the Greenback.

The AUD/USD pair extends its recent downfall from the vicinity of the 0.6900 mark, or a nearly one-month high touched last week and drifts lower for the fourth successive day on Wednesday. The downward trajectory remains uninterrupted through the early European session and drags spot prices to a one-week low, around the 0.6770 area in the last hour.

The Australian Dollar (AUD) continues to be undermined by concerns over slowing economic growth in China, which, along with a goodish pickup in the US Dollar (USD) demand, exerts downward pressure on the AUD/USD pair. It is worth recalling that data released on Monday showed that the economic growth in China decelerated substantially in the second quarter and Retail sales - a gauge of consumption - slowed sharply in June. This, in turn, is seen as a key factor weighing on the China-proxy Aussie, though the possibility of more stimulus measures from China could help limit further losses.

The USD, on the other hand, builds on the previous day's rebound from its lowest level since April 2022 and touched a one-week peak amid doubts that the Federal Reserve (Fed) will commit to a more dovish policy stance. The US Core Retail Sales showed more resilience in June and fueled speculations that the Fed might stick to its forecast for a 50 bps rate hike this year. That said, growing acceptance that the US central bank will raise rates one last time in late-July leads to a further steep decline in the US Treasury bond yields, which should cap the USD and act as a tailwind for the AUD/USD pair.

Apart from this, the underlying bullish sentiment around the equity markets might further contribute to keeping a lid on the safe-haven buck and lending support to the risk-sensitive Aussie. Hence, it will be prudent to wait for strong follow-through selling before confirming that the AUD/USD pair has formed a bearish double-top pattern near the 0.6900 mark. Traders now look to the US economic docket, featuring Building Permits and Housing Starts, which, along with the US bond yields, might influence the USD price dynamics and produce short-term trading opportunities around the major.

Technical levels to watch