AUD/USD finds bids from 0.6350, downside looks likely on Fed-RBA policy divergence

• AUD/USD may continue its downside momentum conclusion of a less-confident pullback from 0.6350.
• Fed’s fourth consecutive 75 bps rate hike as widened Fed-RBA policy divergence.
• Australian Trade Balance is seen higher at 8,850M for the September month vs. the former release of 8,324M.

The AUD/USD pair has attempted a recovery after registering a fresh weekly low at 0.6350 in the early Asian session. The greenback bulls are extremely solid after the rate hike announcement by the Federal Reserve (Fed). As Fed chair Jerome Powell has pushed interest rates to 3.75-4%, negative market sentiment has sky-rocketed, which could terminate the less-confident pullback move by the aussie bulls.

The major won’t be able to sustain its rebound and will display more weakness on hawkish guidance by the Fed. A fourth consecutive rate hike of 75 basis points (bps) was highly expected as the odds for the event were at the rooftop. What has soured the market sentiment is the commentary from Fed policymakers that it is premature to consider a pause in the policy tightening spree. The reason behind the absence of consideration of a pause in restrictive measures is the accelerating inflationary pressures.

The inflation rate is extremely higher than Fed’s target and remained stronger than expected last month. Households are facing the headwinds of higher payouts due to de-anchored short-term inflation. Consumer spending has trimmed dramatically but still needs time to show its impact on price growth.

A bigger rate hike by the Fed has widened the divergence in the Reserve Bank of Australia (RBA)-Fed policy. The Australian central bank accelerated its interest rates too this week. RBA Governor Philip Lowe continued with a 25 bps rate hike structure, keeping in mind, economic prospects should remain firmer along with the agenda of bringing price stability.

On Thursday, Australian external activities data will remain in focus. The Aussie Trade Balance data for September month is seen higher at 8,850M vs. the prior release of 8,324M. A better-than-projected Trade Balance data may support aussie dollar against the greenback.