Australian Dollar attempts to hold ground after recent losses on solid US Inflation data

• Australian Dollar lost ground as the US Dollar rose on upbeat US CPI numbers.
• Australian ASX 200 Index falls; put pressure on the AUD.
• US Dollar strengthened on upbeat US Treasury yields.
• Robust US CPI numbers dashed the chances of the Fed’s rate cut in March.

The Australian Dollar (AUD) continues to decline following a sharp drop in the previous session, driven by robust US inflation data for January, which dashed hopes of an imminent rate cut by the Federal Reserve (Fed) in March.

Australian Dollar received downward pressure as the S&P/ASX 200 Index tumbled to its lowest levels in three weeks, driven by a selloff in mining and financial stocks following Wall Street's decline overnight in response to stronger-than-expected US inflation figures.

The US Dollar Index (DXY) remains steady near three-month highs, supported by recent gains, while US yields trade at multi-week highs across the yield curve. Market sentiment has shifted dramatically, with expectations for an unchanged rate next month soaring to 93%, a stark contrast to a month earlier. Investors are now pricing in the possibility of a rate cut by the Fed in June.

Daily Digest Market Movers: Australian Dollar declines after solid US Inflation data

• Stephen Kennedy, the Head of Australia's Treasury, addressed a parliamentary committee, noting that services inflation is trailing behind goods inflation. He mentioned that services inflation has likely peaked and is expected to decline over the next two years, and he sees no evidence of a wage-price spiral.
• Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank might consider initiating rate cuts even before inflation decelerates to 2.5%. However, she cautioned that the RBA remains receptive to the prospect of further rate hikes.
• RBA's Head of Economic Analysis, Marion Kohler, emphasized uncertainty regarding current inflation projections for the Australian economy. However, she anticipates that price growth will eventually return to a more moderate level by 2025.
• China’s headline CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
• US headline Consumer Price Index (CPI) increased by 3.1% in January, exceeding the expected 2.9% but lower than the previous rate of 3.4%.
• US Inflation rose by 0.3% month-over-month, against the expectation of maintaining the previous reading of 0.2%.
• US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
• US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.

Technical Analysis: Australian Dollar hovers around the major level of 0.6450

The Australian Dollar trades near 0.6450 on Wednesday following the next psychological support level of 0.6400. On the upside, the key resistance appears at the psychological level of 0.6500. A breakthrough above this psychological barrier could influence the AUD/USD pair to reach the 14-day Exponential Moving Average (EMA) at 0.6523 followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level at 0.6550.

AUD/USD: Daily Chart