AUD/USD faces stiff barricades around 0.6800 despite hawkish RBA bets, US Dollar rebounds

• AUD/USD has retreated from 0.6800 amid a strong recovery in the USD Index.
• S&P500 is expected to open on a bearish note due to the cautious market mood.
• The RBA is expected to announce a final hike of 25 bps in September and will push rates to 4.85%.

The AUD/USD pair has sensed tough barricades after a short-lived pullback to near the round-level resistance of 0.6800 in the New York session. The Aussie asset has retreated as the US Dollar Index (DXY) has shown a solid recovery after attracting significant bids near 102.00.

S&P500 is expected to open on a bearish note amid a cautious market mood. The risk-aversion theme is in action as investors are baffled about further policy action by the Federal Reserve (Fed). Economists at Rabobank expect the Fed to hike in July, a more moderate pace would imply skipping September and that would leave us with November as the meeting for the second hike. However, even the Fed’s own staff expects the economy to be in a mild recession by then. Therefore, we continue to leave a second hike out of our forecasts.

The USD Index has rebounded to near 102.30 after the release of mildly higher United States weekly Initial Jobless Claims data. The US Department of Labor has reported that jobless claims for the week ending June 16 were higher at 264K than expectations of 260K. Jobless claims have landed higher-than-anticipated fourth time in a row. Labor market conditions are consistently losing their heat and it could force the Fed to go light on interest rates in July.

On the Australian Dollar front, recovery in inflationary pressures and upbeat Employment could force the Reserve Bank of Australia (RBA) to hike interest rates further. Economists at TD Securities expect one final 25 bps hike in Sep, taking the cash rate to 4.85%. Whether the RBA takes the cash rate above 5% will be dependent on how quickly the stock of excess savings is run down.