AUD/USD extends recovery above 0.6470, DXY turns subdued ahead of Fed policy

• AUD/USD is aiming to sustain its recovery amid a decline in hawkish Fed bets.
• The DXY is struggling to sustain above 110.40 as the risk impulse remains mute.
• The RBA could remain in dilemma whether to return to the 50 bps rate hike pattern or go for frequent small hikes.

The AUD/USD pair has extended its recovery above the intraday hurdle of 0.6470 amid mixed cues from market sentiment. S&P500 futures are holding on to their morning losses amid the absence of a positive trigger while 10-year US Treasury yields have resurfaced after dropping to near 3.93%.

The US dollar index (DXY) is struggling around 110.40 in the early European session after a sheer reversal on Thursday. Robust Gross Domestic Product (GDP) numbers in July to September period brought a relief rally for the DXY.

The US GDP for the third quarter landed at 2.6% and remained upbeat from the projections of 2.4%. Also, a shift into expansion mode after displaying economic contraction in the first half of CY2022 led to a return of investors’ confidence in the economic prospects.

Going forward, investors will focus on the interest rate policy of the Federal Reserve (Fed), which is scheduled for next week. As per the CME FedWatch tool, the chances of 75 basis points (bps) rate hike by the Federal Reserve (Fed) stand at 82.85%.

The odds for a 75 bps rate hike have been trimmed after a slowdown in consumer spending in the third quarter. This indicates that exhaustion in the inflationary pressures is not so far and the market participants will witness a decline in price pressures in the coming months.

On the Aussie front, a historic surge in the inflation rate, released this week, at 7.3%, could weigh on the Reserve Bank of AustraIia (RBA)’s decision-making regarding the extent of the hike in the Official Cash Rate (OCR). RBA Governor Philip Lowe could remain in dilemma whether to return to the 50 bps rate hike pattern or go for frequent small hikes.