AUD/USD gains sharply to near 0.6520 as RBA's Hunter warns of upside inflation risks

• AUD/USD jumps to near 0.6520 as inflation risks in the Australian economy remain on the upside.
• The Unemployment Rate is estimated to have accelerated to 4.3% in September.
• Fed dovish expectations weigh heavily on the US Dollar.

The AUD/USD pair trades 0.5% higher to near 0.6520 during the European trading session on Wednesday. The Aussie pair strengthens as the Australian Dollar (AUD) outperforms its peers amid expectations that the Reserve Bank of Australia (RBA) is unlikely to follow an aggressive monetary easing approach in the near term.

Market participants doubt quick interest rate cuts from the RBA as Assistant Governor Sarah Hunter warns of upside inflation risks, while speaking at the Citi Australia & New Zealand Investment Conference in Sydney earlier in the day.

"Inflation likely to be stronger than forecast in Q3, and labor market and economic conditions might be tighter than assumed," Hunter said.

For more cues on the inflation outlook, investors will focus on the Q3 Consumer Price Index (CPI) report, which will be released later this month.

On the global front, trade tensions between the United States (US) and China could be a drag on the Australian Dollar, given that the Australian economy relies heavily on its exports to China.

This week, investors will focus on the Australian employment data for September, which will be released on Thursday. The Unemployment Rate is expected to have increased to 4.3% from 4.2% in August.

Meanwhile, the US Dollar (USD) extends its correction as investors shift their focus to firm expectations that the Federal Reserve (Fed) will cut interest rates two times more this year.

According to the CME FedWatch tool, traders see a 94.6% that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% in the remaining year.

On Tuesday, Fed Governor Michelle Bowman argued in favor of reducing interest rates further amid cooling job market conditions. "I continue to see two more cuts before the end of this year," Bowman said, Reuters reported.