AUD/USD eases from one-week high, downside seems limited amid weaker USD

• AUD/USD edges lower on Friday, though the intraday downtick lacks follow-through.
• China’s COVID-19 woes weigh on investors’ sentiment and the risk-sensitive Aussie.
• The prevalent USD selling bias lends support and limits the downside for the major.

The AUD/USD pair struggles to capitalize on its gains recorded over the past three trading sessions and retreats from over a one-week high touched earlier this Friday. The pair trades with a mild negative through the early European session and is currently placed around the mid-0.6700s, though any further pullback seems elusive.

Worries about the worsening COVID-19 situation in China keep a lid on the recent optimistic move in the markets, which, in turn, acts as a headwind for the risk-sensitive Aussie. In fact, China announced strict curbs in several major cities in the wake of a record-high jump in daily COVID-19 cases. This, in turn, adds to concerns about a further slowdown in economic activity and tempers investors' appetite for perceived riskier assets.

The downside for the AUD/USD pair, however, remains cushioned, at least for the time being, amid the underlying bearish sentiment surrounding the US Dollar. The November FOMC meeting minutes released on Wednesday revealed that a substantial majority of policymakers judged that a slowing rate hike would soon be appropriate. This leads to an extension of the recent decline in the US Treasury bond yields and continues to undermine the greenback.

The mixed fundamental backdrop, meanwhile, warrants some caution before positioning for a firm near-term direction for the AUD/USD pair. Moreover, relatively thin trading volumes might further hold back traders from placing aggressive bets and support prospects for an extension of the consolidative price move on the last day of the week.

Technical levels to watch