AUD/USD declines towards 0.6900 as Fed policymakers sound hawkish on rate guidance

The AUD/USD pair has gauged an intermediate cushion around 0.6920 in the early Asian session. The Aussie asset is expected to continue the downside momentum as signs of a pullback are missing yet. Also, the risk profile is negative as investors are expecting that more interest rate hikes by the Federal Reserve (Fed) will deepen recession fears in the United States.

S&P500 witnessed a sell-off by the market participants as further rate hikes by the Fed will soften the economic activities further, portraying a risk aversion theme. Apart from that, the proposal from US President Joe Biden to tax billionaires heavily by quadrupling taxes on corporate buybacks to which investors show dissatisfaction.

The US Dollar Index (DXY) is aiming to shift its auction profile above 103.00 as upbeat labor market data has triggered the risk of further policy tightening by the Federal Reserve (Fed). Contrary to that, the return provided on 10-year US Treasury bonds dropped below 3.62%.

Fed Governor Christopher Waller said on Wednesday that inflation seems poised to continue slowing this year but the US central bank's battle to reach its 2% target "might be a long fight" with monetary policy kept tighter for longer than anticipated, as Reuters reported. The strong labor market data will also be followed by higher employment costs to address the former, which could trigger upward pressure on the inflation projections.

On the Aussie front, investors are awaiting the release of China's Consumer Price Index (CPI) (Jan) data, which is scheduled for Friday. As per the consensus, the annual data is seen higher at 2.1% vs. the former release of 1.8%. Chinese administration is providing monetary stimulus to trigger economic recovery after dismantling pandemic controls, which is subjected to an increase in inflation, and eventually, infrastructure spending will also increase. It is worth noting that Australia is a leading trading partner of China and a significant economic recovery in China will support the Australian Dollar.