Australian Dollar strengthens following hot CPI

• Australian Dollar is a top performer from the session, favored by hot CPI figures from May.
• Following May's hot CPI figures, the market closely watches further inflation indications for potential RBA action.
• If the RBA holds hawkish, the downside for the Aussie is limited.

Wednesday's session observed an incline in the Australian Dollar (AUD), as it rose to the mark of 0.6690 against the US Dollar, before retracing back to the 0.6650 mark. The recently released Australian inflation data, which came in higher than expected, benefited the Aussie against its peers, but the Greenback itself is also trading with vigor.

In Australia, despite signs of a weaker economy, the stubbornly high inflation acts as a hindrance to the Reserve Bank of Australia's (RBA) potential rate cuts, potentially limiting downside pressure on the Aussie.

Daily Digest Market Movers: Aussie shows resilience amid hot CPI figures

• On the data front, Australia's May Consumer Price Index CPI ran hot. The headline came in at 4.0% YoY vs. 3.8% expected and 3.6% in the previous month.
• This marked the third consecutive month of acceleration to the highest since November, moving further above the 2-3% target range
• As a result of these developments, the swaps market is now pricing in nearly 40% odds of a 25 bps rate hike on September 24, extending to nearly 50% for November 5.
• In the last meeting, Governor Bullock affirmed the RBA "will do what is necessary" to bring inflation back to target and foresees a longer period before inflation gets sustainably back in the target range.
• Accordingly, with the RBA ruling out rate cuts and with markets potentially considering rate hikes, the downside on the Aussie is set to remain constrained.

Technical analysis: AUD/USD looks to retain buyer interest at 20-day average

From a technical standpoint, the outlook remains fairly neutral with no clear directions. The Relative Strength Index (RSI) continues to stay above 50 but remains flat. The Moving Average Convergence Divergence (MACD) continues in the negative sphere with a series of red bars. Anticipation builds around buyers retaining the AUD/USD above the 20-day Simple Moving Average (SMA), a key defensive line that could dictate the future momentum of the pair.