AUD/USD refreshes session low amid a pickup in USD demand

• A combination of factors prompted some fresh selling around AUD/USD on Tuesday.
• Vaccine fears dented investors’ confidence and weighed on the perceived riskier aussie.
• A sudden pickup in the US bond yields underpinned the USD and added to the selling bias.

The AUD/USD pair broke down of its intraday consolidative trading range and refreshed daily lows, around the 0.7725-20 region during the early European session.

Following a rather muted reaction to the release of the RBA meeting minutes, the pair witnessed some fresh selling and was pressured by a combination of factors. Investors turned caution following the suspension of the Oxford/AstraZeneca coronavirus vaccine in several European nations. This acted as a key headwind for the perceived riskier aussie.

On the other hand, the US dollar remained well supported by the prospects for a relatively faster US economic recovery. Apart from this, a sudden pick up in the US Treasury bond yields provided an additional boost to the greenback. This was seen as a key factor behind the AUD/USD pair's latest leg of decline over the past hour or so.

The upbeat US economic outlook was bolstered by the passage of a massive $1.9 trillion stimulus package. The reflation trade has been fueling speculations for a possible uptick in US inflation, which, in turn, pushed the yield on the benchmark 10-year government bond back above 1.6%, closer to over one-year tops touched last week.

Despite the pullback, the AUD/USD pair remains well within the previous day's trading range. Investors now seemed reluctant to place any aggressive bets ahead of this week's major event risk – the FOMC monetary policy meeting. That said, sustained weakness below the 0.7700 mark is likely to pave the way for a further intraday downfall.

In the meantime, market participants will look forward to the US monthly Retail Sales data for some impetus later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the AUD/USD pair.

Technical levels to watch