AUD/USD slides as investors await Fed’s rate hike

The Australian dollar plunges to fresh four-week lows after news that the Federal Reserve would hike 75 bps in the June meeting, the largest since 1994.

The Fed’s move is meant to address the US hot inflation that hit 8.6%, with no signs of abating in the near term. After reaching a daily high near 0.6970, the Australian dollar collapsed and trades at 0.6894.

The AUD/USD fell on the back of a Wall Street Journal’s news piece saying: “a string of troubling inflation reports in recent days is likely to lead Federal Reserve officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest rate.”

The market sentiment was sour on Monday and carried on to Tuesday’s American session, weighing on the AUD/USD, which has plummeted close to 3% in the first two days of the week.

US data (PPI) released on Tuesday saw the May prices paid by producers in the US rose by 0.8% MoM, aligned with expectations. On an annual basis, the latest PPI reading downtick to 10.8%, from 10.9% estimations.

The AUD/USD approached the 0.6900 figure on the PPI news but dipped towards 0.6880s before extending its losses to a new daily low at 0.6876.

During the Asian session, the Australian NAB’s May business survey showed that business confidence and conditions fell, though they remained elevated compared to the trend. The report showed that total and retail prices continued in solid form, suggesting that upward pressure would keep mounting.

The Australian economic calendar will feature at around 12:30 GMT the Westpac Consumer Confidence for June. On the US front, May’s Retail Sales, alongside Imports and Exports Prices, would shed some light on the US economic outlook. Later at around 18:00 GMT, the Federal Reserve will reveal its monetary policy decision.

Technically; the AUD/USD is downward biased, reinforced by the break below the June 2 low at 0.7140, extending the pair losses towards the 0.7030s area. Nevertheless, on Monday, the major collapsed in tandem with most G8 currencies vs. the greenback on Federal Reserve news.

The AUD/USD pair might re-test the 0.6900 before resuming the uptrend. Then the AUD/USD first support would be the May 16 low at 0.6872. A breach of the latter would expose the May 13 daily low at 0.6853, followed by the YTD low at 0.6828.