AUD/USD remains vulnerable around 0.6400 as hawkish Fed bets soar, US NFP in focus

• AUD/USD is displaying signs of further weakness around 0.6400 as hawkish Fed bets soar.
• The Fed will continue hiking rates by a higher extent to cool down inflationary pressures.
• Fed’s Evans sees interest rate hike by 125 bps collectively in the remaining 2022.

The AUD/USD pair has sensed selling pressure around 0.6432 and is expected to conclude its pullback move. The asset is likely to return to the round-level support of 0.6400 as odds for a 75 basis point (bps) rate hike by the Federal Reserve (Fed) dramatically. Meanwhile, the risk-off sentiment is getting its traction back as S&P500 has surrendered its rebound move.

As per the CME Fedwatch tool, the probability of announcing a fourth consecutive rate hike by 75 bps has soared to 75.9% while odds for half-a-percent rate hike have declined to 24.1%. It is worth noting that projections for the US Nonfarm Payrolls (NFP) data are subdued. The payroll additions are seen at 250k for September vs. additions of 315k reported in August.

The foremost priority of the Federal Reserve (Fed) is bringing price stability to the economy and in the achievement of the same, the central bank is ready to sacrifice upbeat employment status for a certain period of time. Therefore, the market participants are expecting that the Fed will continue its current pace of hiking interest rates. Still, the release of the US NFP report will provide more clarity on the decision-making of the Fed.

Fed policymakers are supporting bigger rate hikes to fix the inflation chaos. Chicago Fed Bank President Charles L. Evans believes that the central bank will reach the targeted rate of 4.5-4.75% by the springtime of 2023. And, the central bank will step up the interest rates by 125 basis points (bps) in the remaining two monetary policy meetings of 2022.

On the Aussie front, the Reserve Bank of Australia (RBA) has warned of financial stability risks that have increased over recent months, as per the semi-annual financial stability review. The central bank believes that Australian markets are stressed by the collective impact of policy tightening, geopolitical tensions, firmer US dollar, and soaring energy prices.