AUD/USD Struggles Around 0.6800 Despite RBA’s Aggressive Line Bets, Dollar Bounces

• AUD/USD has pulled back from 0.6800 amid a strong rally in the USD index.
• The S&P 500 is expected to open lower on cautious markets.
• The RBA is expected to announce a final 25 basis point hike in September and take rates to 4.85%.

The pair AUD/USD has struggled strongly after a brief pullback to near the 0.6800 round level resistance in the American session. The AUD has pulled back while the Dollar Index (DXY) has shown a strong recovery after attracting significant bids near 102.00.

The S&P 500 is expected to open lower amid cautious market sentiment. Risk aversion is in action as investors are puzzled over further policy moves from the Federal Reserve (Fed). Rabobank economists expect the Fed to raise rates in July, a more moderate pace would mean skipping September and that would leave November as the meeting for the second hike. However, even the Fed’s own staff expects the economy to be in a mild recession by then. Therefore, we continue to leave a second rise out of our forecasts.

The USD Index has bounced to around 102.30 after the release of weekly data for initial US jobless claims, which has risen slightly. The US Department of Labor has reported that jobless claims for the week ending June 16 were higher than expectations of 260,000, standing at 264,000 claims. For the fourth time in a row, applications for unemployment benefits have exceeded forecasts. Labor market conditions are steadily losing steam and could force the Fed to lower interest rates in July.

Regarding the Australian dollar, the recovery of inflationary pressures and optimism in employment could force the Reserve Bank of Australia (RBA) to raise interest rates further. TD Securities economists forecast a final 25 basis point hike in September, which would put the cash rate at 4.85%. Whether the RBA pushes the cash rate above 5% will depend on how quickly excess savings are reduced.