AUD/USD defends post-Fed gains around 0.7000 with eyes on Australia Employment

• AUD/USD remains sidelined after positing the biggest daily gains in six weeks.
• US Treasury yields, USD dropped after Fed matched wide market expectations by announcing 75 bp rate hike.
• Aussie employment numbers are expected to improve in May, Consumer Inflation Expectations, RBA Bulletin eyed as well.

AUD/USD grinds higher around 0.7000 as bulls take a breather following the Fed-inspired rally, the biggest daily jump since early May. That said, the Aussie pair’s inaction during the initial hours of Thursday morning in Asia could be linked to the cautious mood of traders ahead of Australia’s inflation expectations and employment numbers, as well as a light calendar by the press time.

Aussie bulls returned to the table after the US dollar failed to cheer the Fed’s 75 basis point (bp) rate hike. The pair’s gains could also be linked to the softer yields, firmer equities and upbeat gold prices, not to forget expectations of firmer jobs reports and RBA’s aggression.

The US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised up inflation forecasts for this year and the next while cutting down the inflation expectations. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward. The policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting.

Following the Fed’s verdict, the US 10-year Treasury yields not only snapped the five-day uptrend but slumped the most since early March, by falling around 10 bps to 3.29%. The resulted in moves allowed Wall Street benchmarks to witness the biggest daily jump in over a week, as well as dragging the US Dollar Index (DXY) from a 20-year high to 104.87 at the latest.

It’s worth noting that the latest reaction to the Fed’s rate hike isn’t a signal for the AUD/USD pair’s trend reversal as the trader's eye monthly jobs report for May and Melbourne Institute’s Consumer Inflation Expectations for June. RBA’s Quarterly Bulletin will be important to watch too.

Forecasts suggest an improvement in the headline Employment Change by 25K versus 4K prior whereas the Unemployment Rate is expected to decline to 3.8% from the 3.9% forecast. Further, the Consumer Inflation Expectations were 5.0% at the latest.

“Despite the robust demand for labor as evinced by job vacancies, weekly payrolls remain weak; Westpac therefore anticipates employment to lift by 5k in May (vs. consensus +25k) with a clear risk of a negative print. A very small decline in participation should see the unemployment rate round down to 3.8%. MI inflation expectations should continue to hold at an elevated level in June,” said Westpac ahead of the release.

Technical analysis

Multiple levels marked since early May highlight 0.7030-35 as the immediate key hurdle to cross for the AUD/USD if bulls wish to keep the reins. Otherwise, a downside break of January’s low near 0.6965 could be enough to recall the bears.