AUD/USD tumbles to 0.6560 on US Dollar’s recovery, RBA’s less-hawkish policy stance

• AUD/USD hits hard due to US Dollar’s recovery and dismal market sentiment.
• Fed Kashkari sees interest rates remaining steady by the year-end.
• RBA Bullock doesn’t see the need to hike interest rates again.

The AUD/USD pair witnesses an intense sell-off and falls to 0.6560 in Wednesday’s early American session due to multiple headwinds. A sharp recovery in the US Dollar and weakness in the Australian Dollar due to less-hawkish interest rate guidance from the Reserve Bank of Australia (RBA) after keeping them unchanged at 4.35% have weighed on the Aussie asset.

The market sentiment turns downbeat as investors remain uncertain over the Federal Reserve’s (Fed) rate-cut timing. The S&P 500 opens on a negative note, exhibiting a decline in investors’ risk appetite. 10-year US Treasury yields recovered to 4.48% after Minneapolis Federal Reserve (Fed) Bank President Neel Kashkari raised concerns over stalled progress in the disinflation process as it favours interest rates remaining at their current levels for the entire year.

The US Dollar Index (DXY) advances to 105.50 as Neel Kashkari said he wants to see multiple positive inflation readings to build confidence that inflation is progressively declining to the 2% target. He added that weakness in the job market could justify the need for a rate cut.

Due to the absence of top-tier United States economic data, investors will focus on speeches from policymakers: Fed Vice Chair Philip Jefferson, President of the Federal Reserve Bank of Boston Susan Collins and Fed Governor Lisa Cook to project the next move in the US Dollar.

Meanwhile, the Australian Dollar remains under pressure after the RBA’s less-hawkish commentary on the interest rate outlook. In the press conference, RBA Governor Michele Bullock ruled out expectations of more rate hikes despite recent price pressures exceeding expectations. Bullock said, “I don't think we necessarily have to tighten again.” He added, “We believe rates are at the right level to get inflation back to target.”