AUD/USD keeps the red near 0.6900 mark, downside seems cushioned amid softer USD

• Disappointing Chinese macro data prompted fresh selling around AUD/USD on Monday.
• A softer risk tone was seen as another factor that undermined the perceived riskier aussie.
• Sliding US bond yields kept the USD bulls on the defensive and helped limit deeper losses.

The AUD/USD pair remained on the defensive through the first half of the European session and was last seen trading with modest intraday losses, around the 0.6900 round-figure mark.

Following an early uptick to the 0.6960 area, the AUD/USD pair met with a fresh supply and touched an intraday low around the 0.6890 region in reaction to shockingly weaker Chinese macro releases. The data underscored the damage caused by COVID-19 lockdowns in the world's second-largest economy and weighed on the China-proxy Australian dollar.

Apart from China's zero-COVID-19 policy, the war in Ukraine has been fueling concerns about softening economic growth amid the prospects for a more aggressive policy tightening by the Fed. This, in turn, tempered investors' appetite for perceived riskier assets, which was evident from a softer tone around the equity markets and further undermined aussie.

The anti-risk flow dragged the yield on the benchmark 10-year US government bond further away from the recent peak of 3.20%. This, in turn, kept the US dollar bulls on the defensive and extended some support to the AUD/USD pair. Nevertheless, the fundamental backdrop supports prospects for an extension of the bearish trend witnessed over the past one month or so.

Market participants now look forward to the release of the US Empire State Manufacturing Index for a fresh impetus later during the early North American session. The data, along with the US bond yields, will influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment for short-term opportunities around the AUD/USD pair.

The focus would then shift to the release of the Reserve Bank of Australia monetary policy meeting minutes on Tuesday. This will be followed by the US Retail Sales and Industrial Production figures. Apart from this, remarks by several FOMC officials, including the Fed Chair Jerome Powell, will be looked upon for clues about the possibility of a 75 bps rate hike move, which will drive the USD demand and determine the near-term trajectory for the AUD/USD pair.

Technical levels to watch