AUD/USD retreats from above 0.6650 as investors anticipate a neutral RBA policy

• AUD/USD has witnessed selling pressure after a recovery move to near 0.6650 as the USD Index has rebounded.
• The catastrophic impact of the US Treasury default could dampen the leadership position and the credibility of the United States economy.
• Cooling down Australian tight labor market conditions are expected to force the Reserve Bank of Australia (RBA) to return to an unchanged policy stance.
• AUD/USD’s upside is capped from April 03 high around 0.6793 while the downside is restricted from March 07 low around 0.6580.

AUD/USD has shown some selling pressure after a recovery move to near 0.6650 in the Asian session. The Aussie asset witnessed an extreme sell-off in early Asia after the release of the downbeat Australian Employment data. A sheer slowdown has been witnessed in Australian Employment generation as firms are facing pressure due to higher interest rates from the Reserve Bank of Australia (RBA).

S&P500 futures have recovered the majority of losses posted in early Asia, portraying a recovery in the risk appetite of the market participants. US equities were heavily bought on Wednesday after US President Joe Biden remained confident about the approval of raising the US debt-ceiling limit. Expectations for a US borrowing cap increase surged after House of Representatives Joseph McCarthy cited that the deal with the White House is doable.

The US Dollar Index (DXY) is making efforts for climbing above the immediate resistance of 102.90 despite receding fears of a catastrophic US default case. While the 10-year US Treasury yields have dropped sharply below 3.57%.

US debt-ceiling issues to resolve by the weekend

After fresh commentary from US President Joe Biden and House of Representatives Joseph McCarthy, one thing is clear the US debt-ceiling issue will get resolved as it could force US Treasury a default on obligated payments. The catastrophic impact of the US Treasury default could dampen the leadership position and the credibility of the United States economy.

However, the important fact out of commentaries is that the default deal is completely off the table. Each member attended US debt-ceiling negotiations and admitted that a raise in US debt-ceiling along with a higher budget deficit due to increased President’s spending initiatives cited it as a disaster. The USD Index would also get under pressure as plenty of US Dollars flush into the economy would trim its appeal firmly.

Downbeat Australian Employment supports steady Reserve Bank of Australia policy

The Australian Dollar was heavily beaten in early Asia after the Australian Bureau of Statistics came with downbeat Employment numbers. As per the report, the Australian labor market reported a decline in the number of payrolls by 4.3K while the street was anticipating an additional fresh 25K jobs. The Unemployment Rate jumped sharply to 3.7% vs. the consensus and the former release of 3.5%.

Cooling down tight labor market conditions is expected to force the Reserve Bank of Australia (RBA) to return to an unchanged policy stance. Investors should note that RBA Governor Philip Lowe surprisingly raised interest rates by 25 basis points (bps) to 3.85% in May monetary policy.

On Wednesday, the Australian agency reported stubborn Wage Price Index data. The labor cost data is expected to soften ahead as lower job openings would trim bargaining power in favor of job-seekers.

AUD/USD technical outlook

Scrutiny of AUD/USD’s four-hour scale indicates that the upside is capped from April 03 high around 0.6793 while the downside is restricted from March 07 low around 0.6580. The 20-period Exponential Moving Average (EMA) at 0.6666, indicating as a barricade for the Australian Dollar bulls.

A decisive breakdown of the Relative Strength Index (RSI) (14) into the 20.00-40.00 range will trigger the downside momentum.