AUD/USD corrects further to near 0.6620 as US Dollar gains, US CPI in focus

AUD/USD falls further to near 0.6620 as the US Dollar outperforms its peers.
The Fed and the RBA are unlikely to cut interest rates in the near term.
Investors await the US CPI data for fresh cues on the US interest rate outlook.

Sagar Dua FXStreet

The AUD/USD pair extends its correction further to near 0.6620 during the European trading session on Wednesday, which started on Thursday after refreshing an almost three-month high near 0.6686. The Aussie pair is under pressure as the US Dollar (USD) recovers further on expectations that the Federal Reserve (Fed) is done with reducing interest rates, at least for now, after lowering them by 75 basis points (bps) this year to 3.50%-3.75%.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.4% higher to near 98.60.

According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 25 basis points (bps) to 3.25%-3.50% in the January meeting is almost 20%. Fed Chair Jerome Powell also stated in the policy meeting last week that the bar for another interest rate cut is very high.

Meanwhile, the rising United States (US) jobless rate has also failed to lift Fed dovish expectations. The US Nonfarm Payrolls (NFP) report on Tuesday showed that the Unemployment Rate accelerated to 4.6% in November, the highest reading seen since September 2021.

Going forward, the major driver for the Fed’s monetary policy outlook will be the US Consumer Price Index (CPI) data for November, which will be released on Thursday.

On the Australian Dollar (AUD) front, the currency is broadly stable against its other peers as the Reserve Bank of Australia (RBA) is expected to hold interest rates at their current levels. The RBA is unlikely to make dovish monetary adjustments in the near term as inflationary pressures have risen above the central bank’s tolerance band of 2%-3%.

Economic Indicator

Unemployment Rate

The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can't determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.

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