• AUD/USD kicks off the new week on a downbeat note and drops to over a two-year low.
• Aggressive Fed rate hike bets continue to boost the USD and exert downward pressure.
• RBA’s dovish tilt, the risk-off mood also drives flows away from the risk-sensitive aussie.

The AUD/USD pair extends last week's post-NFP bearish breakdown momentum through the 0.6400 mark and remains under intense selling pressure on Monday. Spot prices continue losing ground through the first half of the European session and weaken further below the 0.6300 round figure, hitting the lowest level since April 2020 in the last hour.

The US dollar buying remains unabated on the first day of a new week, which, in turn, is seen exerting heavy downward pressure on the AUD/USD pair. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, climbs to a one-and-half-week high and continues to drag support from a combination of factors.

The robust US monthly employment details released on Friday pointed to the resilient economy and gives the Fed enough space to keep hiking interest rates at a faster pace to curb inflation. In fact, the markets are pricing in over 80% chances of another supersized 75 bps Fed rate hike move for the fourth consecutive meeting in November.

This pushed the US Treasury bond yields higher, which, along with the prevalent risk-off environment, acts as a tailwind for the safe-haven greenback. The market sentiment remains fragile amid growing worries about a deeper global economic downturn, a further escalation in the Russia-Ukraine conflict and renewed US-China trade jitters.

The Australian dollar, on the other hand, is undermined by the fact that the Reserve Bank of Australia (RBA) sent a dovish signal last week and decided to slow the pace of policy tightening. This, in turn, supports prospects for additional losses, though a slightly oversold RSI (14) on the daily chart warrants caution for bearish traders.

Furthermore, thin trading volumes - amid the US bank holiday in observance of Columbus Day - make it prudent to wait for some consolidation or a modest bounce before positioning for an extension of the downtrend. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the downside.

Technical levels to watch