AUD/USD faces downward pressure on Fed’s hawkish minutes, Aussie’s labor market data eyed

• Fed minutes reveal a commitment to the 2% inflation target, with most of the board acknowledging lingering inflation risks.
• Despite the unanimous decision to raise rates, some officials cautioned, suggesting a potential pause in September’s rate hike.
• US Treasury bond yields rise, with the 10-year benchmark note at 4.258%, boosting the USD.

AUD/USD prolonged its losses on Wednesday after the US Federal Reserve (Fed) revealed its July meeting minutes, which bolstered the US Dollar (USD) as investors perceived a hawkish tilt in the minutes, as shown by money market futures. Consequently, the AUD/USD edges lower, with the pair trading at 0.6421, down 0.04% as the Asian session begins.

US Dollar strengthens as Federal Reserve minutes hint at potential rate hikes, while upcoming Australian employment data remains in focus

The minutes showcased the Fed’s board commitment to attain its 2% inflation target, with the majority of the board seeing risks of inflation lingering that could require action by the Fed. Even though officials elected to raise rates unanimously, cautious voices emerged, providing a dovish opinion and could pave the way for skipping a rate hike at the upcoming September meeting.

In regards to a recession, Fed staff no longers foresee a mild recession, though policymakers continued to stress downside risks to growth and upside risks to the unemployment rate. Federal Reserve officials agreed that forthcoming rate decisions would be based on a comprehensive assessment of incoming data while adopting a cautious approach in the upcoming months.

The market’s reaction to those plays saw an uptick in US Treasury bond yields, with the 10-year benchmark note yielding 4.258% gaining two basis points, underpinning the greenback, which according to the US Dollar Index (DXY), ended Wednesday’s session gaining 0.24% at 103.446.

On the Australian front, the release of July’s employment report on Thursday would be the week’s highlight. Labor market data is expected to show signs of weakness, which could ease pressure on the Reserve Bank of Australia (RBA), which, despite raising rates up to 4.10%, has paused its tightening cycle in the last two meetings.

Given the backdrop, the AUD/USD might continue to edge lower. It could be exacerbated by bad economic news from China, Australia’s largest trading partner. Recent data published by the National Bureau of Statistics (NBS) showed China’s economic recovery remains bumpy as domestic consumption remains soft, industrial production slowed down, and a deflationary scenario could dampen its economic growth.

AUD/USD Price Analysis: Technical outlook

The AUD/USD has fallen to new year-to-date (YTD) lows of 0.6415m threatening to extend its losses toward the 0.6400 figure. If that support gives way, the November 10 daily low of 0.6386 is up next before testing the November 2022 lows of 0.6272. Nevertheless, buyers keeping the AUD/USD pair above 0.6400 could pave the way for a recovery, with eyes set at 0.6500. A breach of the latter will expose a previous support-trendline turned resistance at 0.6525.