- AUD/USD meets with heavy supply following the release of the softer Australian CPI report.
- A strong pickup in the USD demand exerts additional pressure and contributes to the fall.
- Traders now look to the US Q4 GDP for some impetus ahead of the US PCE on Thursday.
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The AUD/USD pair is facing significant selling pressure following a day of indecisive price movements, plummeting to nearly a two-week low during the first half of the European session. Spot prices have slipped below the key psychological level of 0.6500 in the last hour and appear susceptible to further weakening, given the prevailing strength of the US Dollar (USD).
Although the initial market reaction to Tuesday’s disappointing US Durable Goods Orders was short-lived, expectations that the Federal Reserve (Fed) will maintain higher interest rates for an extended period have kept the impact alive. Additionally, a reversal in global risk sentiment, reflected in a retreat in equity markets, is boosting the Greenback’s perceived safe-haven status and diverting capital away from the perceived riskier Australian Dollar.
The Australian Dollar (AUD) is grappling with pressure from domestic consumer inflation figures, which remained stagnant at a two-year low in January, contrary to consensus expectations of an increase. According to the Australian Bureau of Statistics (ABS), the headline CPI registered a 3.4% year-on-year (YoY) rate for the reported month, matching December’s lowest reading since November 2021.
Furthermore, the Core CPI, excluding volatile items like fuel, fresh food, and holiday travel, dipped from the previous month’s 4.2% YoY rate to 4.1% in January. This data has fueled speculations that inflationary pressures could ease more rapidly than anticipated, reducing the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA), thereby weighing heavily on the AUD.
Simultaneously, the flight to safety is prompting a renewed decline in US Treasury bond yields, which might restrain USD bulls from making aggressive bets. This potential scenario could provide some support to the AUD/USD pair ahead of the pivotal US Personal Consumption Expenditure (PCE) Price Index release on Thursday. Traders on Wednesday will look to the preliminary US Q4 GDP data and Fed speeches for market direction.
