AUD/USD stretches downside to near 0.6630 as Fed gets reason to resume policy tightening

The AUD/USD pair has extended its downside significantly to near 0.6630 in the early New York session. The intense sell-off in the Aussie asset is inspired by a solid recovery in the US Dollar Index (DXY). The US Dollar Index has refreshed its day’s high at 102.56 as the sustainable addition of fresh payrolls in the labor market has strengthened hopes of more interest rate hikes from the Federal Reserve (Fed).

S&P500 is set to open on a muted note following cues from the overnight futures. The US Dollar Index failed to pick strength as lower-than-anticipated payroll additions offset the impact of rising wage pressures. Meanwhile, the 10-year US Treasury Yields have dropped marginally to near 4.06%.

After upbeat labor cost figures, investors are awaiting June’s Consumer Price Index (CPI) data, which is scheduled for Wednesday at 12:30. Fed policymakers are consistently reiterating that core inflationary pressures are extremely stubborn and more interest rate hikes are appropriate to maintain pressure.

However, upbeat Average Hourly Earnings are sufficient for the Fed to accelerate interest rate hikes. Chicago Fed President Austan Goolsbee said two more interest rate hikes this year are well-favored.

On the Australian Dollar front, after a skip in the policy-tightening spell, the Reserve Bank of Australia (RBA) is expected to elevate interest rates further to 4.35%. Knowing the fact that labor market conditions are tightening and inflation at 5.6% is far from the desired rate of 2%, RBA Governor Philip Lower would uplift policy rates.

In China, consumer and Producer Price Index (PPI) are consistently decelerating as the overall demand by households is extremely weak. Dismantle of pandemic controls has failed to uplift economic prospects and has propelled fears of a slowdown.

It is worth noting that Australia is the leading trading partner of China and bleak demand in China impacts the Australian Dollar.