AUD/USD declines towards 0.6400 as US Dollar strengthens, Powell’s speech in focus

• AUD/USD falls to near 0.6400 as the appeal for the US Dollar improves.
• The US Dollar strengthens ahead of Powell’s speech.
• RBA Bullock kept hopes of further rate-tightening alive, citing that the progress in inflation declining to 2% has slowed.

The AUD/USD pair is declining toward the round-level support of 0.6400 in the early New York session. The Aussie asset is expected to continue its downside trend as the appeal for safe-haven assets has improved. The US Dollar recovers further as Federal Reserve (Fed) policymakers see the need for more interest rate hikes to tame inflationary pressures comfortably.

Fed policymakers: Michelle Bowman and Neel Kashkari remained hawkish while guiding about interest rates on Tuesday, citing risks of persistent inflation due to the resilient US economy. Fed Bowman sees the requirement of further policy hikes as current tightening financial conditions have been deliberately contributed by higher bond yields, which could not remain elevated for a longer period.

The S&P500 has opened on a cautious note as investors are worried ahead of guidance on interest rates from Fed Chair Jerome Powell. Investors are confused about whether Jerome Powell would discuss the need for further policy tightening to cement price stability or emphasize seldom keeping current policy restrictive for a longer period.

The US Dollar Index (DXY) gathers strength to recapture the immediate resistance of 106.00 despite investors seeing that the Fed is done with hiking interest rates. The tight US labor market has started easing as business investment remained weak in the last quarter due to higher borrowing costs.

Meanwhile, the risks of widening Middle East tensions have eased as market participants see conflicts remaining between Israel and Palestine.

The Australian Dollar failed to gain strength despite an interest rate hike from the Reserve Bank of Australia (RBA) on Tuesday. The RBA raised its Official Cash Rate (OCR) by 25 basis points (bps) to 4.35%. 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.