AUD/USD retreats amid surging US inflation, revised Fed rate cut expectations

• Australian Dollar faces a significant downturn as US inflation figures outpace forecasts, boosting the US Dollar and Treasury yields.
• Traders adjust Fed rate cut projections based on new inflation insights, with a less aggressive easing strategy anticipated.
• Upcoming economic reports, includes China's inflation data and the US PPI.

The Australian Dollar posted losses of more than 1.50% on Wednesday against the US Dollar following the release of a hotter-than-expected inflation report in the United States (US). Traders have begun to price in fewer rate cuts by the US Federal Reserve, a bullish signal for the Greenback. Therefore, the AUD/USD trades at 0.6511, virtually unchanged, as Thursday’s Asian session commences.

AUD/USD falls sharply to 0.6511, reacting to US CPI data

Mach’s Consumer Price Index (CPI) in the US exceeded estimates of 0.3% MoM in headline and core, with both readings edging a tenth higher at 0.4%. Yearly figures clocked 3.5% YoY in general inflation, crushing February’s data, while core CPI was unchanged at 3.8%. Following the release, US Treasury yields soared, the Greenback rallied, and Wall Street plummeted.

Consequently, interest rate futures traders priced in just two rate cuts, as witnessed by data released by the Chicago Board of Trade (CBOT). The Fed funds rate is projected to end the year at 4.99%.

Later, the March minutes of the Federal Open Market Committee (FOMC) revealed that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected.”

On the Aussie’s front, the economic schedule remains scarce, though traders will watch China’s March inflation report. In the US, further inflation data will be scrutinized, as the Producer Price Index (PPI) is expected to dip, while the number of Americans filing for unemployment benefits is expected to slow down compared to the previous reading.

AUD/USD Price Analysis: Technical outlook

From a price action standpoint, the AUD/USD shifted bearish bias and will face first support at the 0.6500 psychological figure. The Relative Strength Index (RSI) turning bearish, along with the break of key support levels, suggests that further downside is seen.

The AUD/USD first support would be the April 1 low of 0.6481, followed by the February 13 swing low at 0.6443. If those two levels are cleared, the pair will be trading at lower levels for the new year-to-date (YTD), with sellers eyeing the 0.6400 figure.

In the event buyers move in and reclaim the 200-DMA at 0.6603, look for a test of the next supply zone at 0.6631.