AUD/USD drops below 0.6700 amid less-hawkish RBA minutes, US debt-ceiling talks in focus

• AUD/USD has slipped below 0.6700 as RBA minutes indicate that a rate hike was announced due to inflation risks.
• Australia’s quarterly labor cost index data is seen accelerating to 0.9%.
• The Congressional Budget Office warned that the US would face a "significant risk" of defaulting on payment obligations.

The AUD/USD pair has dropped below the round-level support of 0.6700amid the release of the Reserve Bank of Australia (RBA) minutes for May’s monetary policy meeting. RBA minutes indicate that it went for a rate hike due to a higher inflation outlook. More rate hikes were required due to inflation risks from weak productivity growth, persistently high services inflation, and faster-than-forecast rental increases.

Investors should be aware of the fact that RBA Governor Philip Lowe raised interest rates unexpectedly by 25 basis points (bps) to 3.85%. The street was anticipating an unchanged policy stance as Australia’s inflation is consistently declining for the past three months. Monthly inflation has already softened significantly from its peak of 8.4% to 6.3% figure recorded for March.

RBA policymakers are anticipating a further slowdown in the Australian economy due to higher interest rates, which will weigh heavily on Australian inflation ahead.

On Wednesday, the Australian Bureau of Statistics will report the Wage Price Index data for the first quarter of CY2023. As per the estimates, quarterly labor cost index data is seen accelerating to 0.9% from the former release of 0.8%. Also, annual data is expected to jump to 3.6% vs. the prior release of 3.3%. An increase in labor cost index data would fuel the need for further quantitative tightening by the RBA.

Meanwhile, the US Dollar Index (DXY) has rebounded to near 102.40 as investors are getting anxious ahead of US debt-ceiling negotiations. The Congressional Budget Office warned that the United States would face a "significant risk" of defaulting on payment obligations within the first two weeks of June if fails in raising the government's $31.4 trillion debt ceiling, adding that payment operations will remain uncertain throughout May.