- AUD/USD falls sharply to 0.6600 as US Dollar rises after stubborn US inflation data.
- The hot US inflation report has dented market expectations for Fed rate cuts in the June meeting.
- RBA Hunter warned about the deepening cost-of-living crisis.
The AUD/USD pair descends to the key support level of 0.6600 following the release of stronger-than-anticipated United States Consumer Price Index (CPI) data for February, which diminishes the attractiveness of Australian assets. The Australian dollar weakens as persistent inflationary pressures in the US boost demand for the US Dollar.
Investor sentiment towards riskier currencies dampens as market participants seek refuge in safe-haven assets. The US Dollar Index (DXY) stages a rapid recovery to reach 103.30 amid speculation that the Federal Reserve (Fed) might reconsider its plans for interest rate cuts in the upcoming June meeting. Meanwhile, 10-year US Treasury yields climb close to 4.15%.
The unexpectedly high inflation figures raise uncertainties regarding potential Fed rate cuts. During last week’s Congressional testimony, Fed Chair Jerome Powell emphasized the need to ascertain sustained inflation reaching the 2% target before considering interest rate adjustments. However, the February inflation data presents a contrasting narrative.
Looking ahead, market focus shifts towards the release of the US Producer Price Index (PPI) and monthly Retail Sales data for February, scheduled for Thursday.
On the domestic front, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter discusses the economic landscape at the Australian Financial Review business summit in Sydney during Tuesday’s Asian session, highlighting the challenges posed by inflation for households amidst potential interest rate hikes. This sets the stage for the RBA’s upcoming monetary policy decision next week, where policymakers are anticipated to maintain the Official Cash Rate (OCR) at its current level of 4.35%.
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