AUD/USD drops to one-week low, further below 0.7000 mark amid fresh USD buying

• AUD/USD meets with a fresh supply on Wednesday after a softer Australian Wage Price Index.
• The cautious mood and weaker commodity prices further weigh on the resources-linked aussie.
• The USD hovers near the monthly high and adds to the selling bias ahead of the FOMC minutes.

The AUD/USD pair struggles to capitalize on the overnight late rebound and meets with a fresh supply on Wednesday. The pair remains on the defensive through the early European session and is currently placed near a one-week low, just below the 0.7000 psychological mark.

The Australian dollar weakened after data released by the Australian Bureau of Statistics showed that Wage Price Index fell short of market expectations and rose 0.7% during the second quarter. The softer data dampens prospects for a 50 bps rate hike by the Reserve Bank of Australia in September. This, along with weaker commodity prices, exerts some downward pressure on the resources-linked aussie.

The US dollar, on the other hand, stands tall near the monthly peak and continues to draw support from hawkish Fed expectations. Despite last week's softer US CPI report, the recent comments by several Fed officials suggest that the US central bank would stick to its policy tightening path. Apart from this, a softer risk tone further underpins the safe-haven buck and weighs on the risk-sensitive aussie.

The market sentiment remains fragile amid growing worries about a global economic downturn, fueled by the disappointing Chinese macro data on Tuesday. The fundamental backdrop supports prospects for an extension of the depreciating move for the AUD/USD pair. That said, traders might refrain from placing aggressive bets ahead of the FOMC meeting minutes, due for release later during the US session.

The markets are currently pricing in at least a 50 bps rate hike at the September FOMC meeting. Hence, the minutes would be looked for clues about the possibility for a 75 bps move. This would influence the USD and determine the next leg of a directional move for the AUD/USD pair. In the meantime, the US Retail Sales figures might provide some impetus later during the early North American session.

Technical levels to watch