AUD/USD extends downside below 0.6750 as Fed-RBA to resume policy tightening

• AUD/USD has slipped below  0.6750, however, the downside seems favored.
• The Fed is expected to raise interest rates by 25 bps to 5.25-5.50% as core inflation is still persistent.
• Tight labor market conditions in Australia are confirming the resumption of the policy-tightening spell by the RBA.

The AUD/USD pair has stretched its downside below the immediate support of 0.6750 in the European session. Weakness in the Aussie asset is backed by sheer strength in the US Dollar.

S&P500 futures have generated significant gains in London. US equities are expected to witness a stock-specific action amid corporate earnings season. The US Dollar Index (DXY) is facing some pressure after a north-side elevated move marginally above 101.00, however, the upside move is still favored considering the strength in the upside momentum.

After easing in United States inflationary pressures, loosening labor market conditions, and a decline in consumer spending growth in June, investors are shifting their focus toward the interest rate decision by the Federal Reserve (Fed), which will be announced on July 27.

The Fed is expected to raise interest rates by 25 basis points (bps) to 5.25-5.50% as core inflation is still persistent and more interest rates are appropriate to bring it down to desired rate. Discussions about the number of times the Fed will raise interest rates in July have heated. While Fed chair Jerome Powell in his last commentary said two more interest rate hikes are appropriate, expectations at the CME FedWatch tool have drummed only one more interest rate hike this year.

On the Australian Dollar front, tight labor market conditions are confirming the resumption of the policy-tightening spell by the Reserve Bank of Australia (RBA). Employment additions in June were recorded at 32.6K while investors estimated fresh addition of 15K. The Unemployment Rate remained steady at 3.5% vs. expectations of 3.6%

Investors should note that RBA skipped hiking interest rates in June and kept the Official Cash Rate  (OCR) at 4.10%.