AUD/USD encounters losses following higher-than-expected US CPI figures

• The AUD/USD fell below the 0.6700 level after posting 0.30% losses.
• Surging US CPI in December made dovish bets on the Fed ease.
• The downside for the pair is limited as the odds of a cut in March from the Fed are high.

The Australian Dollar (AUD) softened on Thursday, tallying losses against the US dollar (USD), with the pair reaching near the 0.6685 mark. Major contributors to this downturn movement are the surprisingly higher than-anticipated Consumer Price Index (CPI) data from the United States, which made dovish bets on the Federal Reserve (Fed) ease.

On Thursday, the US Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) escalated to 3.4% YoY in December, surpassing November's 3.1% and the predicted 3.2% market figure. Moreover, December's monthly CPI growth experienced a 0.3% rise, besting the estimated projection of 0.2% as predicted by market analysts. The Core CPI came in at 3.9%, down from 4% in November.

Following the release, dovish bets on the Federal Reserve (Fed) eased somewhat, but according to the CME FedWatch Tool, they are still high. In that sense, investors remain stubborn and are betting on higher than 50% odds of a cut in March and May, which would leave the target rate at 450-475 bps by June. As long as the markets strengthen the dovish rhetoric, the upside for the Greenback will be limited.

AUD/USD levels to watch

The daily chart indicates that there is a mixed stance towards the pair. The negative slope in the Relative Strength Index (RSI) and its position in negative territory communicate an underlying selling momentum. This implies that sellers have recently had the upper hand and suggests a possible downtrend continuation. This aligns with the rising red bars of the the Moving Average Convergence Divergence (MACD)

Bringing in the perspective of the Simple Moving Averages (SMAs), the pair is positioned below the 20-day SMA, suggesting a shorter-term bearish bias. Yet, since it's standing above the 100 and 200-day SMAs, the longer-term trend appears to be bullish. This points to the fact that the bulls are still in control in the larger time frames despite the recent bearish developments.

AUD/USD daily chart