AUDUSD Outlook: Bears might now aim to retest 0.6550 horizonal resistance breakpoint

• AUDUSD drops to over a one-week low on Monday amid some follow-through USD buying.
• COVID-19 jitters, geopolitical risks benefit the buck and weigh on the risk-sensitive Aussie.
• The fundamental backdrop suggests that the path of least resistance for the major is down.

The AUDUSD pair extends last week's retracement slide from the vicinity of the 0.6800 mark, or over a two-month high and remains under some selling pressure through the Asian session on Monday. The prevalent cautious mood allows the safe-haven US Dollar to build on its recovery from the post-US CPI slump to the lowest level since August 12 and exerts pressure on the risk-sensitive Aussie. Investors remain concerned about economic headwinds stemming from the worsening COVID-19 situation in China and the imposition of fresh lockdowns in several financial hubs - including the capital Beijing and the economic centre Shanghai. Furthermore, fears of a potential escalation in the Russia-Ukraine conflict temper investors' appetite for riskier assets and drive haven flows towards the buck.

In fact, China registered more than 27K new COVID-19 cases on Sunday and further fuel worries about a slowdown in economic activity. This contributes to the ongoing downfall in copper prices, which is seen as another factor denting demand for the resources-linked Australian Dollar. Meanwhile, the recent hawkish signals from several Federal Reserve officials suggest that the Fed might still be far from pausing its policy-tightening cycle. Adding to this, the better-than-expected US Retail Sales data released last week cast doubts on the peak inflation narrative and favours the USD bulls. This, along with speculations that the Reserve Bank of Australia (RBA) will stick to its dovish course, supports prospects for an extension of the depreciating move for the AUDUSD pair.

The fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and any attempted recovery could be seen as a selling opportunity. In the absence of any relevant market-moving economic data, the USD price dynamics will continue to play a key role in influencing the AUDUSD pair. Later during the early North American session, traders might take cues from a scheduled speech by San Francisco Fed President Mary Daly. Apart from this, the broader risk sentiment will drive the USD demand and provide some impetus to the AUDUSD pair. The focus, however, will remain glued to the FOMC monetary policy meeting minutes, due on Wednesday.

Technical Outlook

From a technical perspective, some follow-through selling below the Asian session low, near the 0.6635 area, will confirm an intraday bearish break below the 200-hour SMA. The AUDUSD pair will then turn vulnerable to weaken further below the 0.6600 mark and accelerate the fall towards the 0.6550-0.6540 strong horizontal resistance breakpoint. The latter should act as a pivotal point, which if broken decisively should set the stage for a slide towards challenging the 0.6500 psychological mark.

On the flip side, the 0.6600 round figure now seems to cap any intraday positive move. Any subsequent strength could be seen as a selling opportunity and remain capped near the 0.6680 region. This is closely followed by the 0.6700 mark. A sustained strength beyond the latter is needed to negate the near-term bearish bias. The AUDUSD pair will then make a fresh attempt towards conquering the 0.6800 round-figure mark, with some intermediate resistance near the 0.6740-0.6745 area.