AUD/USD scales to near 0.6750 as investors cheer signals of Fed’s policy-tightening pause

• AUD/USD has climbed to near 0.6750 as Fed signaled a pause in the rate-hiking spree.
• The Fed has not surrendered its weapons in front of stubborn inflation yet as it won’t look for any rate cuts this year.
• More downside in the USD Index cannot be ruled amid an absence of blanket insurance for all deposits in collapsed banks.

The AUD/USD pair has scaled higher to 0.6750 in the early European session. The Aussie asset has been strengthened after the Federal Reserve (Fed) chair Jerome Powell delivered cues about pausing the rating-hiking spree after hiking rates by 25 basis points (bps) to 4.75%-5.00%. The street is expecting that Fed Powell has considered a pause amid fears of a banking debacle after the collapse of three mid-size United States banks.

However, the Fed has not surrendered its weapons in front of stubborn inflation yet as one more rate is still in pipeline and the central bank won’t look for any rate cuts this year.

S&P500 futures have stretched their recovery dramatically as investors are shifting their focus to rate-hiking pause signals from expectations of tight credit conditions by US banks for advances. Fed Powell in his commentary about the condition of the US banking sector claimed that US banks are strong and resilient, however, recent events of financial instability could not rule out more filter execution from banks while disbursement of advances.

Tight credit conditions by US banks would lead to delays in advances to households and businesses, which could impact inflation, overall demand, and economic activities. Firms could witness a working capital crisis if advances get delayed and would get prone to an operating loss.

The US Dollar Index (DXY) is an inch far from the 102.00 cushion in the early European session. More downside in the USD Index cannot be ruled as an absence of assurance of blanket insurance for all deposits by US Treasury Secretary Janet Yellen has dented the confidence of investors in the US administration.

On the Australian Dollar front, investors are awaiting the release of preliminary S&P Global PMI (March) data. As per the consensus, Manufacturing PMI will contract to 50.3 and Service PMI will decline to 49.9.