AUD/USD inter-markets: hawkish Fed should aggravate the selling pressure, remains vulnerable in the near-term

Despite of in-line with expected quarterly CPI print, the Australian Dollar remained under selling pressure against its US counterpart and the AUD/USD pair is now trading close to session low around 0.7470 region.

The pair initially reacted positively to the CPI data and soared to 0.7565 but quickly retraced and turned back sharply lower as market seemed unimpressed by higher inflation reading on expectations that the RBA might still go ahead and slash interest-rates at its meeting in August. 

Of late, the pair has witnessed intense selling pressure after recent RBA meeting minutes showed the readiness to ease further. The slide was accompanied by a downtick in base metals, especially Copper. Adding to this rising expectations of an imminent Fed rate-hike later during this year, as depicted the Fed fund rate futures, aggravated the selling pressure. 

Diverging monetary policy expectations also led to increase in yield spread between the US and Australian 10-year treasuries. Meanwhile, a tepid bounce in the Volatility Index (VIX) boosted the safe-haven appeal of the greenback and contributed to the slide in the AUD/USD major.

Next in focus would the crucial Fed monetary policy statement, which if delivers hawkish tone (on expected lines) would further dent demand for high-yielding currencies - like the Australian Dollar, and continue dragging the AUD/USD pair lower in the near-term.

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