AUD/USD flirts with daily low, just below 0.6400 mark amid broad-based USD strength

• AUD/USD struggles to gain traction and is pressured by a combination of factors.
• A softer risk tone undermines the risk-sensitive aussie amid modest USD strength.
• The downside seems limited ahead of RBA on Tuesday and FOMC on Wednesday.

The AUD/USD pair surrenders its modest intraday gains and slides to the lower end of its daily trading range, around the 0.6400 round-figure mark during the first half of the European session. The downside, however, remains cushioned as traders seem reluctant ahead of this week's key central bank event risks.

The Reserve Bank of Australia is scheduled to announce its policy decision on Tuesday and is expected to hike interest rates by 50 bps for the fourth successive time in as many meetings. The bets were lifted by last week's stronger-than-expected domestic consumer inflation figures, which continue to act as a tailwind for the Australian dollar and lend support to the AUD/USD pair.

That said, worries about economic headwinds stemming from the recent resurgence in COVID-19 cases in China keep a lid on any meaningful gains for the Australian dollar. The fears were further fueled by Monday's disappointing release of Chinese business activity data, which tempers investors’ appetite for riskier assets and contributes to capping the upside for the risk-sensitive aussie.

The US dollar, on the other hand, gains traction for the third successive day and is looking to build on last week's recovery move from over a one-month low. Against the backdrop of a softer risk tone, elevated US Treasury bond yields, provide a modest lift to the safe-haven greenback. This is seen as another factor acting as a headwind for the AUD/USD pair, at least for the time being.

Hence, the focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday. The Fed is universally expected to raise its benchmark interest rates by 75 bps rate hike move. Hence, investors will look for cues about the future rate-hike path, which will influence the USD and provide a fresh directional impetus to the AUD/USD pair.

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