AUD/USD sticks to RBA-inspires losses, hangs near one-week low ahead of US macro data

The AUD/USD pair extends the overnight retracement slide from the vicinity of the 0.6700 mark, or over a four-month high and drifts lower for the second straight day on Tuesday. The downward trajectory drags spot prices to over a one-week low, around the 0.6570 region during the early European session and is sponsored by a combination of factors.

The Australian Dollar (AUD) weakens across the board after the Reserve Bank of Australia (RBA) decided to keep interest rates unchanged and noted that more economic cues are needed before considering any more changes to monetary policy. In the accompanying policy statement, the RBA noted that the monthly CPI indicator for October suggested that inflation is continuing to moderate and conditions in the labour market, though remaining tight, also continued to ease gradually. This suggested that additional rate hikes might be off the table, which, along with a weaker risk tone, weighs heavily on the risk-sensitive Aussie.

Investors remain concerned about a darkening global outlook and the worsening economic conditions in China. Apart from this, an attack on US vessels in the Red Sea over the weekend, which fueled worries about a broader conflict in the Middle East, took its toll on the global risk sentiment. This, to a larger extent, overshadows Tuesday's better-than-expected release of Caixin China Services PMI, showing that business activity grew at a faster pace in November. This, however, failed to impress the AUD bulls, with a modest US Dollar (USD) uptick further contributing to the offered tone surrounding the AUD/USD pair.

The anti-risk flow is seen as a key factor benefitting the Greenback's relative safe-haven status, though dovish Federal Reserve (Fed) expectations might cap any further gains. Market participants seem convinced that the US central bank is done with its policy-tightening campaign and are pricing in an even chance of the first-rate cut as soon as March 2024. This, along with the global flight to safety, drags the US Treasury bond yields low and might hold back the USD bulls from placing aggressive bets ahead of the US macro data. The mixed fundamental backdrop, meanwhile, warrants caution for the AUD/USD bears.

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