AUD/USD rebounds from below 0.6530 as USD Index drops post US debt-ceiling raise approval

The AUD/USD pair has shown a solid recovery from below 0.6530 amid a sheer sell-off in the US Dollar Index (DXY).  The Aussie asset is aiming to recapture its immediate resistance of 0.6544 as the appeal for risk-perceived currencies has improved dramatically.

S&P500 futures have surrendered significant added posted in early Asia as the demand for US equities has dropped after Republicans agreed on modifying United States debt dynamics to avoid a default situation. House of Representatives Kevin McCarthy agreed for raising the US borrowing cap limit as US President Joe Biden got ready for compromising spending initiatives for the budget. The approval for an increase in the current $31.4 trillion US debt limit has come for two years.

The USD Index has displayed a perpendicular fall after retreating from the crucial resistance of 104.20. More downside for the USD index is anticipated as more liquidity flush into the economy would undermine the appeal of the USD Index.

Meanwhile, investors are not focusing on rising expectations of more interest rate hikes by the Federal Reserve (Fed). Fed chair Jerome Powell is expected to raise rates further despite announcing that tight credit conditions by US regional banks are weighing on inflationary pressures. Households’ spending has increased sharply in April, indicating some persistence in inflation, which could diminish the impact of the interest rates raised yet.

 The Australian Dollar is expected to remain on the tenterhooks as the street is mixed over the interest rate decision by the Reserve Bank of Australia (RBA), which is scheduled for next week. Households’ retail demand remained stagnated in April as higher interest rates and sky-rocketing cost of living have trimmed their pockets. Therefore, RBA Governor Philip Lowe could look for keeping interest rates steady.