AUD/USD weakens further below 0.6700, over one-week low amid modest USD uptick

The AUD/USD drifts lower for the second successive day on Monday and drops to a one-and-half-week low, around the 0.6675 region during the Asian session.

A combination of factors assists the US Dollar (USD) to gain some positive traction on the first day of the new week, which, in turn, is seen exerting downward pressure on the AUD/USD pair. The recent hawkish signals by several Federal Reserve (Fed) officials reaffirmed market bets for another 25 bps lift-off at the next FOMC meeting in May. Adding to this, the incoming US macro data suggested that the world's largest economy remained resilient and supported prospects for further policy tightening by the Fed.

The flash version of the S&P Global's PMI survey showed that the overall business activity in the US private sector expanded at a faster pace in April, with the Composite PMI rising from 52.3 in March to 53.5, or the highest since May last year. The upturn was led by the service sector, where activity grew for a third successive month and at the fastest rate for a year. Adding to this, the gauge for the US manufacturing sector moved in the expansion territory for the first time since October 2022, indicating growth momentum.

The data reinforced expectations that the Fed will continue lifting interest rates to curb inflation and fuels worries about economic headwinds stemming from rising borrowing costs. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone around the equity markets. The anti-risk flow is seen as another factor that benefits the Greenback's relative safe-haven status and weighs on the risk-sensitive Aussie, suggesting that the path of least resistance for the AUD/USD pair is to the downside.

That said, the recent pullback in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets. Apart from this, the hawkish tone from the Reserve Bank of Australia's (RBA) April meeting minutes and the upbeat China macro data released last week should help limit losses for the AUD/USD pair. There isn't any relevant market-moving economic data due for release from the US on Monday. Hence, traders will take cues from the broader risk sentiment to grab short-term opportunities around the pair.

Technical levels to watch