• AUD/USD clings to gains above 0.6500 as the US Dollar struggles to recover the Fed’s policy-generated losses.
• The Fed remains hopeful for rate cuts despite progress in disinflation has stalled.
• Stubborn Australian inflation fuels prospects of RBA delaying rate cuts.

The AUD/USD pair holds gains above the psychological support of 0.6500 in Thursday’s early New York session. The Aussie asset strengthens as the US Dollar struggles to recover losses inspired by the Federal Reserve’s (Fed) less hawkish guidance on interest rates.

The US Dollar Index (DXY) turns sideways after declining to near the crucial support of 105.50. The indication from the Fed’s monetary policy statement and Chair Jerome Powell’s press conference that the central bank leaned towards eventual rate cuts this year despite no progress in inflation declining to the 2% target in the first quarter of this year, weighed on the US Dollar. While the market sentiment has turned positive, exhibited by the positive opening of the S&P 500.

10-year US Treasury yields rise to 6.4% on firm expectations that the Fed would be laggard in pivoting to interest rate cuts in comparison with other central banks from Group of Seven (G7) nations, which have faced high inflation issues.

Meanwhile, the Australian dollar has registered decent gains as a slower-than-expected decline in price pressures in the first quarter of this year has fuelled expectations for the Reserve Bank of Australia to keep key borrowing rates on a restrictive trajectory for a longer period. On an annual basis, the Q1 Australia inflation rose by 3.6% against the consensus of 3.4%. Amid persistent inflation fears, the RBA is expected to deliver hawkish guidance on interest rates on May 7.

Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for April, which will be published on Friday. US employers are anticipated to have recruited 243K jobs, lower than the prior reading of 303K.