The Aussie takes a tumble, UoM Consumer Sentiment next

• Australia’s inflation expectations higher than expected
• US inflation unlikely to sway Fed
• UoM consumer sentiment expected to ease

AUD/USD is down 0.19% today, trading at 0.6688.

Australia’s consumer inflation expectations rise

Australia’s consumer inflation expectations climbed to 5.0% in May, matching the estimate and above the April reading of 4.6%. This is not what the Reserve Bank of Australia wants to hear – if inflation expectations keep rising and become entrenched, it can manifest into higher inflation. The RBA surprised the markets with a 25-basis point hike earlier this month, as investors had expected a second straight pause. Another rate hike at the June meeting will not win the Bank any friends, with businesses and households straining under the weight of rising interest rates.

The US dollar flexed its muscles on Thursday as markets digested the US inflation report, posting strong gains against most of the majors. The Australian dollar took it on the chin, dropping 1.1%, its worst one-day performance since March.

US inflation remains sticky, as the deceleration process appears stalled. Headline CPI dropped from 5.0% to 4.9%, while the core rate ticked lower to 5.5%, down from 5.6%. The Fed pays more attention to the core rate and there’s no arguing that it remains much too high. This means that the Fed is unlikely to be considering any rate cuts, despite the markets mostly pricing in a cut in September.

Powell & Co. may be content to hold rates until inflation shows signs of falling more quickly, but in the meantime, the Fed remains somewhat hawkish. The inflation report wasn’t enough to sway the Fed’s stance, and the US dollar responded with sharp gains on Thursday.

The week wraps up with UoM Consumer Sentiment. Consumers haven’t been in the best of moods, which is to be expected, given rising interest rates and high inflation. The indicator fell to 63.5 in April and is expected to ease to 63.0 in May. If the release is weaker than expected, it will be another sign of cracks in the economy, and the US dollar could respond with losses. Conversely, a surprise to the upside would be bullish for the greenback.

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AUD/USD Technical

• AUD/USD is putting pressure on support at 0.6665.  Below, there is support at 0.6557
• 0.6756 and 0.6855 are the next resistance lines

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