• AUD/USD drops to a one-week low on Monday amid strong follow-through USD buying.
• China’s COVID-19 woes, geopolitical risks boost demand for the safe-haven greenback.
• The setup supports prospects for a further near-term depreciating move for the major.

The AUD/USD pair extends last week's retracement slide from the vicinity of the 0.6800 mark, or over a two-month high and attracts some follow-through selling on Monday. The pair maintains its offered tone through the early North American session and is currently placed near a one-week low, just above the 0.6600 round-figure mark.

The US Dollar gains traction for the third straight day and builds on its bounce from the lowest level since August 12, which, in turn, is seen exerting downward pressure on the AUD/USD pair. The better-than-expected US Retail Sales data released last week cast doubts on the peak inflation narrative. Moreover, hawkish signals from several Fed officials suggest that the US central bank might still be far from pausing its policy-tightening cycle and acts as a tailwind for the greenback.

Apart from this, the prevalent cautious market mood provides an additional lift to the safe-haven buck. Investors remain concerned about 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 take its toll on the global risk sentiment and further weigh on the risk-sensitive Aussie.

Meanwhile, worries about a slowdown in economic activity contribute to the ongoing fall in copper prices, which is seen as another factor denting demand for the resources-linked Australian Dollar. Apart from this, speculations that the Reserve Bank of Australia (RBA) will stick to its dovish course favour the AUD/USD bears. Hence, a subsequent fall below the 0.6600 mark, towards testing the 0.6560-0.6550 strong horizontal support breakpoint, looks like a distinct possibility.

Technical levels to watch