AUD/USD corrects sharply from 0.6500 as US Dollar extends gains

• AUD/USD faces an intense sell-off above 0.6500 amid a risk-off mood.
• A hawkish interest rate decision by the RBA failed to lift the Australian Dollar further.
• Fed Kashkari warned that the Fed’s job would be unfinished if inflation starts to tick back up.

The AUD/USD pair fell sharply after facing intense selling pressure above the psychological resistance of 0.6500 in the early New York session. Bears gripped the Aussie asset tightly as the risk-on market mood faded away.

The S&P500 opens on a negative note as investors turn anxious ahead of the speech from Federal Reserve (Fed) Chair Jerome Powell, which is scheduled for Wednesday. The US Dollar Index (DXY) recovered to near 105.60 amid fears that Fed policymakers could advocate for more rate hikes if the US economy continues to remain resilient.

Minneapolis Fed Bank President Neel Kashkari, said in a statement, that inflation and labor data would guide forward monetary policy actions. He warned that the Fed’s job would be unfinished if inflation starts to tick back up. On Monday, Neel Kashkari warned that the central bank needed to do more to ensure inflation returns to 2%.

Meanwhile, the Australian Dollar faced a sharp sell-off despite the Reserve Bank of Australia (RBA) raising its Official Cash Rate (OCR) by 25 basis points (bps) to 4.35% as expected. The RBA raised interest rates after keeping them unchanged in the last four monetary policy meetings.

RBA Governor Michele Bullock kept hopes of further rate-tightening alive, citing that the progress in inflation declining to 2% has slowed and risks of persistent consumer inflation have escalated.

Going forward, investors will focus on China’s inflation data for October, which will be published on Thursday. Being a proxy to China’s economy, the Australian Dollar would face pressure if deflation risks elevate.