AUD/USD falls on risk aversion

The AUD/USD pair is falling due to weaker risk appetite and the stronger US dollar on the back of soaring Treasury bond yields.

Therefore, the pair drops for the second consecutive day as the US dollar snaps five days of losses, as risk aversion accelerates on the speculation that central banks would slow down the pace of rate hiking following the Reserve Bank of Australia’s dovish hike of 25 bps faded.

Fed policymakers emphasized the need to tame inflation. The AUD/USD is trading at 0.6482 after hitting a daily high of 0.6526 at the time of typing. Fed’s Daly commented that she would like to see core prices down and foresees inflation would likely drop to 3% by 2023.

On Wednesday, Fed officials led by San Francisco’s Fed President Mary Daly crossed newswires. She said she would like to see core prices “stay flat or come down” and added that inflation would likely end in the next year at around 3% rather than 2%. Regarding the labor market, she said that “if Friday’s data shows hiring is slowing, that would be a welcome piece of news.”

Data-wise, US Services PMIs indices were mixed, though the ISM showed the resilience of the US economy as the index continued at expansionary territory, at 56.7, above forecasts but below the previous month’s reading. S&P Global PMIs for Services and Composite indices stayed below the 50-expansion/contraction line, at 49.3 and 49.5, respectively.

Earlier during the trading day, the September US ADP National Employment data depicted that the economy added 208K private jobs to the economy, which could be a prelude for the US Nonfarm Payrolls report on Friday.

At the same time, the US Department of Commerce reported that the US Trade deficit narrowed by 4.3% to $67.4 billion in August, the lowest since May 2021.

Elsewhere the US Dollar Index rallies more than 1%, reclaiming the 111.00 figure at 111.480, reflecting higher US Treasury bond yields. The US 10-year benchmark note rate edged up by almost 15 bps, at 3.779%, as market participants began to price in a 75 bps rate hike at Fed’s November meeting.

The Australia economic docket will feature the AIG Construction Index and the Trade Balance, later in Thursday’s Asian session.

The US economic calendar will feature Initial Jobless Claims on Thursday, alongside Fed speaking, led by Chicago’s President Charles Evans, Cleveland’s Loretta Mester, and Board Members Lisa Cook and Christopher Waller.