AUD/USD rally continues, Fed decision looms

• Fed expected to pause rates
• Australian dollar powers higher
• Australia releases employment report on Thursday

The Australian dollar continues to gain ground and is trading at 0.6795, up 0.42%. The Aussie has been red-hot in June, gaining 4.4%.

Australia releases the May employment report early Thursday. The labour market has stayed solid despite aggressive rate hikes from the central bank, but there may be signs of cracks. In April, Australia shed jobs for the first time in three months, including 27,100 full-time jobs. The RBA won’t be able to pause rates for an extended period unless it is convinced that the labour market is cooling down. The economy is expected to have gained 15,000 jobs in May and the unemployment rate is projected to remain at 3.7%.

Federal Reserve likely to pause

US headline inflation fell to 4.0% in May, down from 4.9% and the lowest level since March 2021. This was positive news, but the decline was driven by a drop in lower food and energy prices. Core CPI, which excludes food and energy, fell from 5.5% to 5.3%, a modest drop. Core CPI at its current level is not compatible with the Fed’s 2% target, which will likely mean more rate hikes unless the core rate decelerates at a faster clip.

The highlight of the week is the Fed rate decision later today. The markets are widely expecting a pause, which would break the streak of ten straight rate hikes. The rate decision may be a foregone conclusion, but the rate statement and Powell press conference could shed some light on what the Fed has planned next. If the Fed stresses that the current tightening cycle is not over, it could dampen risk sentiment and provide some support to the US dollar.

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AUD/USD Technical

• AUD /USD is putting pressure on resistance at 0.6804. Next, there is resistance at 0.6863
• 0.6729 and 0.6632 are providing support

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