Title: AUD/USD remains vulnerable around 0.6400 as hawkish Fed bets soar, US NFP in focus

October 7, 2022 12:17 AM ET

By: AnalysisWatch

The AUD/USD pair has felt selling pressure around 0.6432 and is expected to complete its pullback move. The asset is likely to return to the round support of 0.6400 as the probability of a 75 basis-point (bps) rate hike by the Federal Reserve (Fed) increases dramatically. Meanwhile, risk-off sentiment is regaining traction as the S&P500 has completed its recovery move.

According to CME Fedwatch, the probability of a fourth consecutive rate hike announcement has increased by 75 basis points to 75.9%, while the probability of a rate hike has decreased by half a percentage point to 24.1%. It is worth noting that forecasts for U.S. nonfarm payrolls (NFP) data are muted. September job growth is expected to be 250k, down from 315k in August.

The Federal Reserve's (Fed) top priority is to bring price stability to the economy, and to achieve this, the central bank is willing to forgo positive employment status for a period of time. Therefore, market participants expect the Fed to continue its current pace of rate hikes. Nevertheless, the release of the NFP report in the U.S. will provide more clarity on the Fed's decision-making.

Fed policymakers are in favor of larger rate hikes to address the inflation problem. Chicago Fed Bank President Charles L. Evans believes the central bank will reach its target interest rate of 4.5% to 4.75% by spring 2023. In addition, the central bank will raise interest rates by 125 basis points (bps) in the last two monetary policy meetings of 2022.