AUD/USD extends downside to 0.6400 as Fed seems to delay rate cuts

• AUD/USD slips to 0.6400 amid Middle East tensions, faded speculation for Fed rate cuts.
• Fed Daly sees no urgency for rate cuts with high inflation and a strong labor demand.
• The Chinese economy has exhibited a strong footing in the first quarter of this year.

The AUD/USD pair slumps to near the round-level support of 0.6400 in Tuesday’s early American session. The Aussie asset has extended its losing streak for the third trading session on Tuesday as the broader market mood is risk-averse due to worsening Middle East tensions and expectations that the Federal Reserve (Fed) will delay rate cut plans to later this year.

Risk-sensitive currencies have come under pressure as escalating Middle East tensions are expected to disrupt global supply chain. The Israeli military is anticipated to retaliate to Iran for its airstrikes on their territory. Meanwhile, US President Joe Biden said that he wont support the counterattack from Israel.

10-year US Treasury yields jump further to 4.68% as speculation for the Fed reducing interest rates in the June and July policy meeting have receded. Robust US Retail Sales data for March has reinforced expectations that there will be no urgency from the Fed for rate cuts.

San Francisco Fed Bank President said on Monday that “There is "no urgency" to cut US interest rates.” With inflation remaining hot and demand for labor remains strong, the Fed is expected to maintain a restrictive interest rate stance until it gains confidence that inflation will sustainably return to the desired rate of 2%.

In the Asian region, stronger-than-anticipated China’s Q1 Gross Domestic Product (GDP) data failed to improve the market sentiment. In the first quarter of this year, the Chinese economy strongly expanded by 1.6% from 1.2% in the last quarter of 2023, revised higher from 1.0%. The Australian Dollar is expected to get benefitted by China’s improving economic outlook.

On the domestic front, the Australian Dollar will be guided by the Employment data for March, which will be published on Thursday. The Unemployment Rate is forecasted to have increased to 3.9% from 3.7% in February. In the same period, Australian employers are estimated to have hired 7.2K workers, significantly lower from 116.5K.