AUD/USD corrects to near 0.6500 as hawkish Fed bets soar

The AUD/USD pair has dropped marginally below the psychological support of 0.6500 after facing barricades around the usual resistance of 0.6520, acting firmer for the past few trading sessions. The risk-off profile has got traction back amid escalating Japan-North Korea tensions. Kim Jong-un region is continuously firing missiles and one has been reported outside Japan’s EEZ-NHK in early Tokyo. Also, the 10-year Treasury yields hold them at elevated levels above 3.75% while writing.

Meanwhile, the US dollar index (DXY) is expected to oscillate above 111.20 and will later resume recovery further. A firmer demand has been recorded at around 110.00, which will continue its upside momentum on higher-than-expected US ISM Services PMI data. The economic data has landed at 56.7, higher than the expectations of 56.0. Also, the New Order Index that illustrates forward demand has been reported higher at 60.6 vs. the projections of 58.9.

Apart from that, a release of better-than-projected US Automatic Data Processing (ADP) Employment data has spurted the odds of a fourth consecutive 75 basis point (bps) rate hike by the Federal Reserve (Fed). According to US ADP payroll data, the US economy has added 208k jobs more than the estimates of 200k which has pushed the odds for a 75 bps rate hike to 67.8%, as shown by the CME Fedwatch tool.

On the Aussie front, investors are still in a hangover from an initial extent rate hike announcement by the Reserve Bank Australia (RBA). It is worth noting that the alternative of 25 bps rate hike was in consideration of RBA policymakers as it was discussed in September monetary policy meeting but was not announced.