AUD/USD keeps the red below 0.6300 mark, seems vulnerable amid resurgent USD demand

• AUD/USD meets with aggressive supply on Monday amid a strong pickup in demand for the USD.
• Hawkish Fed expectations remain supportive of elevated US bond yields and underpin the buck.
• A positive risk tone also does little to benefit the risk-sensitive aussie or lend support to the pair.

The AUD/USD pair comes under fresh selling pressure and retreats over 100 pips from levels just above the 0.6400 mark, or a two-week high touched earlier this Monday. The downward trajectory drags spot prices below the 0.6300 round figure during the first half of the European session and is sponsored by a strong pickup in demand for the US dollar.

Despite reports that some Fed officials are signalling greater unease with oversized rate hikes, the markets seem convinced that the US central bank will stick to its faster policy tightening path. This, in turn, remains supportive of elevated US Treasury bond yields and assists the USD to regain strong positive traction on the first day of a new week.

The Australian dollar, on the other hand, is pressured by worries about the economic headwind stemming from China's zero-COVID policy, which overshadows upbeat Chinese third-quarter GDP, which showed that the world's second-largest economy expanded by 3.9% YoY. Adding to this, China's Industrial Output rose 6.3% YoY in September against 4.5% estimates.

Even a positive risk tone does little to lend any support to the risk-sensitive aussie. Meanwhile, the Reserve Bank of Australia (RBA) decided earlier this month to slow the pace of policy tightening. This suggests that the path of least resistance for the AUD/USD pair is to the downside and any attempted recovery might still be seen as a selling opportunity.

Market participants now look forward to the flash US PMI prints, due later during the early North American session. The data, along with the US bond yields and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the AUD/USD pair.

Technical levels to watch