AUD/USD advances to 0.6670 ahead of Australian monthly CPI data

• AUD/USD jumps to 0.6670 with eyes on Australian inflation data for April.
• The US Dollar fails to capitalize on easing Fed rate-cut prospects.
• Fed officials want to see significant progress in the disinflation process before moving to rate cuts.

The AUD/USD pair continues its winning streak for the third trading session on Tuesday. The Aussie asset rises further to 0.6670 as the US Dollar continues to face selling pressure. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, slumps to 104.35 amid a cheerful market mood.

After an extended weekend due to holiday on Monday on account of Memorial Day, the S&P 500 is expected to open on a cautiously bullish note. 10-year US Treasury yields have fallen sharply to 4.45% even though investors lose confidence over the Federal Reserve (Fed) starting to reduce interest rates from their current levels in the September meeting.

The CME FedWatch tool shows that the probability for the Fed maintaining the current policy framework in September has increased slightly above 50% from 34% recorded a week ago. Diminished expectations for the Fed to start lowering key borrowing rates are the outcome of hawkish guidance on interest rates by policymakers.

Fed officials have been reiterating that interest rates are needed to remain at their current levels for long until they get sufficient evidence that inflation will sustainably return to the desired rate of 2%. In the European session, Minneapolis Fed Bank President Neel Kashkari emphasized waiting for significant progress in inflation before lowering interest rates. Kashkari added that more rate hikes remain on cards if inflation fails to come down.

Meanwhile, the Australian Dollar holds strength despite domestic Retail Sales data failing to match expectations. Monthly Retail Sales data for April rose at a slower pace of 0.1% from the consensus of 0.2%. In March, Retail Sales were contracted by 0.4%.

Going forward, investors will focus on the monthly Consumer Price Index (CPI) data for April, which will be published on Wednesday. The inflation data is estimated to have decelerated to 3.4% from the prior reading of 3.5%.