AUD/USD trades with mild negative bias on reviving USD demand, holds above 0.6400

• AUD/USD edges lower on Tuesday and is pressured by the emergence of some USD buying.
• Bets for one more Fed rate hike in 2023 and the cautious market mood benefit the Greenback.
• China's economic woes and dismal Australian consumer confidence data weigh on the Aussie.

The AUD/USD pair ticks lower during the Asian session on Tuesday and retreats further from a four-day high, around the 0.6450 area touched on Monday. Spot prices currently trade around the 0.6420-0.6415 region, down over 0.15% for the day, and remain well within the striking distance of the lowest level since November 2022 set last week.

The US Dollar (USD) attracts fresh buying following the overnight sharp decline and for now, seems to have stalled its retracement slide from a six-month peak, which, in turn, is seen as a key factor weighing on the AUD/USD pair. The prospects for further policy tightening by the Federal Reserve (Fed) remain supportive of elevated US Treasury bond yields and continue to act as a tailwind for the USD. Apart from this, the cautious market mood further benefits the Greenback's relative safe-haven status and exerts some pressure on the risk-sensitive Australian Dollar (AUD).

The markets seem convinced that the US central bank will keep rates higher for longer and have been pricing in the possibility of one more 25 bps lift-off by the end of this year. The bets were reaffirmed by the upbeat US macro data released last week, which pointed to a resilient economy. Adding to this, The Wall Street Journal reported that some officials still prefer to err on the side of raising rates too much, reasoning that they can cut them later. This, in turn, fuels worries about economic headwinds stemming from rising borrowing costs and tempers investors' appetite for riskier assets.

The AUD/USD pair is further undermined by the disappointing release of Australian consumer confidence data, which fell deeper into pessimistic territory during September. In fact, the Westpac - Melbourne Institute Consumer Confidence Index dropped to a dismal 79.7 for September. The gauge has been below the 100 mark since March 2022, the longest streak since the early 1990s recession. This comes on the back of growing concerns about the worsening economic conditions in China and suggests that the path of least resistance for the China-proxy Aussie is to the downside.

Traders, however, might prefer to wait on the sidelines ahead of the crucial US consumer inflation figures, due for release on Wednesday. The data will play a key role in influencing market expectations about the Fed's future rate-hike path, which, in turn, will drive the USD demand and provide a fresh directional impetus to the AUD/USD pair.

Technical levels to watch