The AUD/USD currency pair has experienced a significant downturn, nearing the 0.6630 mark during the early New York session. This sharp decline in the Australian dollar can be attributed to the strong rebound of the US Dollar Index (DXY).

With the addition of new jobs in the labor market, the US Dollar Index reached a daily high of 102.56, fueling expectations of further interest rate hikes by the Federal Reserve (Fed).

The opening of S&P500 is expected to be subdued, following cues from overnight futures. Although the US Dollar Index was unable to gain strength due to lower-than-expected payroll additions offsetting the impact of rising wage pressures. Meanwhile, the 10-year US Treasury Yields have seen a slight decline, hovering around 4.06%.

After positive labor cost data, investors are eagerly awaiting the release of June’s Consumer Price Index (CPI) on Wednesday at 12:30. Federal Reserve policymakers continue to emphasize the persistence of core inflationary pressures and the need for additional interest rate hikes to maintain control.

Encouraging Average Hourly Earnings could provide the necessary impetus for the Fed to accelerate interest rate hikes. Chicago Fed President Austan Goolsbee expressed favor towards two more interest rate hikes in the remaining part of this year.

On the Australian Dollar front, the Reserve Bank of Australia (RBA), after a pause in its tightening policy, is expected to raise interest rates to 4.35%. With tightening labor market conditions and inflation at 5.6%, well above the desired rate of 2%, RBA Governor Philip Lower is likely to implement a policy rate increase.

In China, both the Consumer Price Index (CPI) and Producer Price Index (PPI) continue to slow down as overall household demand remains weak. The easing of pandemic restrictions has failed to stimulate economic prospects, leading to concerns of a potential slowdown.

It is worth noting that Australia, being China’s primary trading partner, is directly affected by the subdued demand in the Chinese market.


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