AUD/USD surrenders intraday gains, skids below 0.7180 despite hawkish RBA

• AUD/USD has plunged to near 0.7170 as the DXY rebounds firmly ahead of the US inflation.
• A higher-than-expected hawkish RBA policy has failed to keep aussie bulls at elevated levels.
• RBA’s tightening policy may trigger recession fears in the Australian economy.

The AUD/USD pair has surrendered its entire intraday gains after hitting a high of 0.7248. An impulsive buying action was displayed by the aussie bulls after the Reserve Bank of Australia (RBA) dictated an interest rate hike by 50 basis points (bps). The asset reversed its recorded gains as investors turned cautious ahead of the US inflation and shifted their funds into the greenback.

Against the consensus of 25 bps, the RBA announced a hike by 50 bps in its Official Cash Rate (OCR). No wonder, a jumbo rate hike announced by the RBA is necessary for taming the inflationary pressures. However, the Australian payroll data for April was not much lucrative, which has triggered recession fears in the Australian economy.

The Australian labor department reported addition of 4k in April, significantly lower than the forecasts of 30k. An extreme policy tightening approach by the RBA will force the corporate to impose more filters on investment opportunities. This will lead to further slippage in the Employment Change.

Meanwhile, the US dollar index (DXY) has extended its gains and has overstepped its previous two week’s high at 102.73. Uncertainty over the release of Friday’s US Consumer Price Index (CPI) is supporting the DXY. A preliminary estimate for the annual US inflation is 8.2% against the prior print of 8.3%. A minor slippage in the US inflation is not going to exhaust the momentum of the DXY bulls but will bolster the odds of a consecutive jumbo rate hike by the Federal Reserve (Fed) next week.