• AUD/USD has attracted significant bets around 0.6800 despite US Retail Sales having expanded by 0.3% vs. a contraction of 0.1% as expected.
• The US Dollar Index has shown a sharp sell-off after a short-lived pullback to near 103.27.
• The synergic effect of a tight labor market and high inflationary pressures is going to force the RBA to remain hawkish ahead.

The AUD/USD pair has found strength near 0.6800 despite the United States Census Bureau having reported significantly upbeat monthly Retail Sales (May) data. The economic data has expanded by 0.3% while the street was anticipating a contraction of 0.1% but the pace of expansion has slowed against the prior pace of 0.4%.

This indicates resilience in US household demand and conveys why the Federal Reserve (Fed) delivered hawkish interest rate guidance.

The US Dollar Index (DXY) has shown a sharp sell-off after a short-lived pullback to near 103.27. More downside in the USD Index seems favored as the impact of the neutral policy stance by Fed chair Jerome Powell is yet to be discounted. Also, the 10-year US Treasury yields have dropped sharply to near 3.8%.

Meanwhile, S&P500 futures have extended their losses as fears of a recession in the US economy have accelerated as Fed chair Jerome Powell has promised that two more interest rate hikes will be announced by year-end.

The ultimate priority of Fed policymakers is to bring inflation down to 2% and the way forward is bumpy due to persistence in core Consumer Price Index (CPI) and tight labor market conditions.

The Australian Dollar is expected to pick more strength amid the release of upbeat Australian Employment data. As per the May labor market report, the Australian economy added fresh 75.9K payrolls against the consensus of 15K. The economy reported a lay-off of 4.3K employees last month. The Unemployment Rate declined to 3.6% vs. the estimates and the former release of 3.7%.

Investors should note that Australian inflation has rebounded to near 6.8% in May. The synergic effect of a tight labor market and high inflationary pressures is going to force the Reserve Bank of Australia (RBA) to remain hawkish ahead.