AUD/USD slips as US CPI cut by 50 basis points Fed

• AUD/USD retreats as the US CPI report points to steady core inflation at 3.2% y-o-y, dampening prospects for a 50 basis point Fed rate cut.
• Money market futures now forecast an 85% chance of a 25 basis point rate cut at the Fed’s next meeting.
• RBA assistant governor notes Australian labor market tight but balanced with AUD braced for new US data this week.

The Australian dollar fell during the North American session after the latest US Consumer Price Index (CPI) report, which saw a rise in prices. Market participants who had priced in a bigger Federal Reserve rate cut trimmed their bets, sponsoring an advance on the US dollar. AUD/USD is trading at 0.6627 after hitting a daily high of 0.6673.

AUD/USD falls to 0.6627 as rising US core inflation dampens hopes for more Fed rate cut

Data from the US Bureau of Labor Statistics (BLS) showed that headline inflation in August fell from 2.9% to 2.6% on the year, as expected. However, the core, which excludes volatile items and is sought as a realistic gauge of inflation, stagnated at 3.2% on the year. In monthly figures, the core CPI rose from 0.2% to 0.3%, while the CPI stood at 0.2% monthly.

After the report, money market futures traders cut odds of a 50 basis point (bps) cut to 15 percent, while odds of a 25 bps cut rose to 85 percent, according to data from the CME FedWatch Tool.

This supported the greenback and weighed on AUD/USD, which extended its losses to a daily low of 0.6622 before recovering ground.

Meanwhile, the US dollar index (DXY), which measures the greenback’s performance against six currencies, held on to minuscule gains of 0.02% at 10168.

At the start of the Asian session, Reserve Bank of Australia (RBA) Deputy Governor Sarah Hunter delivered dovish remarks, saying the labor market remained tight relative to full employment but had moved into a more balanced good from the end of 2022. Hunted stated that the economy is moving through an inflection point.

What to watch?

The Australian economic file will be empty for the rest of the week. On Thursday, the US program will present the Producer Price Index (PPI) and initial jobless claims for the week ending September 7. The University of Michigan Consumer Sentiment is expected on Friday.

AUD/USD Price Forecast: Technical Insights

AUD/USD dropped below the 50- and 100-day moving averages (DMA) at 0.6667 and 0.6647, opening the door to challenge the 200-DMA at 0.6616. If sellers push prices below the latter, look for further losses. First, it needs to break 0.6600 and the next stop would be the August 15 low of 0.6560.

Conversely, if buyers have stepped in and pushed prices above the current week’s high of 0.6689, look for a test of 0.6700.