• AUD/USD comes under fresh selling pressure and is weighed down by a combination of factors.
• The disappointing Chinese PMI and RBA's on-hold decision drive flows away from the Aussie.
• Bets for one more Fed rate hike in 2023 underpin the USD and contribute to the ongoing decline.

The AUD/USD pair struggles to capitalize on the previous day's modest gains and meets with a fresh supply during the Asian session on Tuesday. Spot prices remain depressed near the 0.6430-0.6420 region, or a one-week low and move little after the Reserve Bank of Australia (RBA) announced its policy decision.

As was widely anticipated, the RBA decided to leave the Official Cash Rate (OCR) unchanged at 4.10% for the third time in a row at the end of the September meeting. In the accompanying policy statement, the central bank said that the on-hold decision provides further time to assess the impact of the increase in interest rates to date and the economic outlook. This, along with the weaker Chinese PMI, undermines the Australian Dollar (AUD). Apart from this, the emergence of some US Dollar (USD) buying contributes to the offered tone surrounding the AUD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, stands tall just below a nearly three-month peak touched in August and remains well supported by expectations that the Federal Reserve (Fed) will keep rates higher for longer. Despite signs that labour market conditions in the US were easing, the markets are still pricing in the possibility of one more 25 bps lift-off by the end of this year. This, in turn, remains supportive of elevated US Treasury bond yields, which lends support to the buck and weighs on the AUD/USD pair.

The aforementioned fundamental backdrop favours bearish traders and suggests that the path of least resistance for spot prices is to the downside. Hence, a subsequent fall back towards challenging the YTD low, around the 0.6365 region touched on August 17, looks like a distinct possibility. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for an extension of the AUD/USD pair's well-established downtrend witnessed since July 14, from the vicinity of the 0.6900 mark, which constituted the bearish double-top on the daily chart.

Technical levels to watch