AUD/USD retreats sharply from 0.6800 ahead of Fed Powell’s testimony

• AUD/USD has faced immense pressure around 0.6800 as the focus shifts to Fed Powell’s testimony.
• New Fed nominees have cleared their intentions that a slowdown in price pressures is their major focus.
• The Australian Dollar has shown a bumpy ride as RBA minutes turn out to be less hawkish than expected.

The AUD/USD pair has witnessed significant selling pressure after a short-lived pullback to near the round-level resistance of 0.6800 in the London session. The Aussie asset has dropped vertically to near 0.6760 as investors are worried ahead of the Federal Reserve (Fed) chair Jerome Powell's testimony and Australia’s preliminary S&P PMI (June) data, which is scheduled for Thursday.

S&P500 futures have trimmed some losses posted in Asia, portraying a marginal recovery in the risk appetite of the market participants. The overall market mood is still cautious as a reiteration of hawkish guidance from Jerome Powell would stimulate fears of a recession in the United States.

The US Dollar Index (DXY) is facing barricades in extending its recovery above 102.65 as the street is divided about interest rate guidance. As per the CME Fedwatch tool, more than 50% chances are in favor of only one interest rate hike from the Fed by year-end. The US Treasury yields are showing a decent recovery. The yields offered on 10-year US Treasury bonds have jumped above 3.75%.

Meanwhile, new Fed nominees Governor Lisa Cook and vice chair Philip Jefferson have cleared their intentions that a slowdown in price pressures is their major focus so that the economy can return to sustainable growth.

The Australian Dollar has shown a bumpy ride as Reserve Bank of Australia (RBA) minutes turn out to be less hawkish than expected. RBA minutes indicate that policymakers were mixed about hiking interest rates further in June or its postponement to July. However, May’s Employment data released after RBA monetary policy has confirmed further policy-tightening.

Going forward, Aussie’s preliminary S&P PMI data (June) will be in focus. Manufacturing PMI is seen declining to 48.1 vs. the prior release of 48.4. Services PMI is expected to drop sharply to 50.1 against the former release of 52.1.