AUD/USD remains on the defensive below 0.6450, investors await Australian CPI data

• AUD/USD holds below 0.6450 in Monday’s early Asian session. 
• The hawkish comments from Fed officials in recent weeks have lifted the Greenback. 
• The moderate Australian inflation data and the continuously tight labour market could prompt RBA rate cuts this year. 

The AUD/USD pair remains on the defensive near 0.6420 during the early Asian session on Monday. The Federal Reserve (Fed) media blackout went into effect at midnight Friday. Nonetheless, the US central bank has delivered hawkish messages in recent weeks and markets expect the first cut in September. 

On Friday, Chicago Fed President Austan Goolsbee said that inflation progress had “stalled and the Fed’s current restrictive policy is appropriate. Meanwhile, Atlanta Fed President Raphael Bostic, one of the most hawkish members of the FOMC, stated that the US central bank wouldn’t cut rates until the end of the year. The chance of a June cut has fallen below 20% and the odds of a July cut have dropped below 50%. A September cut is not fully priced in, with the probability falling below 90%, according to the CME FedWatch Tool. 

The hawkish stance from Fed officials in recent weeks provides some support to the US Dollar (USD) and creates a headwind for the AUD/USD pair. Investors will take more cues from the US inflation data this week. The final reading of the US March Personal Consumption Expenditures Price Index (PCE) will be due on Friday. Headline PCE inflation is estimated to rise to 2.6% YoY, while the core is expected to fall a tick to 2.7% YoY. 

On the Aussie front, inflation is still above the Reserve Bank of Australia’s (RBA) target but continues to moderate in line with the RBA’s latest forecasts. The continuously tight labor market could prompt those calling for an RBA rate reduction before the end of the year, which might drag the Australian Dollar (AUD) lower against the Greenback. The Australian Consumer Price Index (CPI) on Wednesday will be a closely watched event. Investors may push back the expected timing of rate cuts if the inflation data is hotter than expected, which might cap the downside of the AUD/USD pair.