Aussie slides to 3-week low as CPI falls sharply

• Australian inflation declines more than expected
• AUD/USD slides in response to the inflation report
• US Consumer Confidence jumps

The Australian dollar is sharply lower on Wednesday. In the European session, AUD/USD is trading at 0.6636, down 0.75%. Earlier, the Australian dollar touched a low of 0.6618, its lowest level since June 7th.

Australian CPI falls to 5.6%

Australia’s inflation was expected to fall in May, but the decline was sharper than expected. Headline CPI tumbled to 5.6% y/y in May, down from 6.8% and below the consensus of 6.1%. Inflation has now dropped to its lowest level in 13 months. Core inflation also fell, as Trimmed Mean CPI declined to 6.1% y/y, down from 6.7%, the lowest level in seven months.

The inflation release sent the Australian dollar sharply lower, as the markets have priced in a higher chance of a pause at the July meeting, at around 70%. The inflation report was a gift-wrapped present for the Reserve Bank of Australia, which surprised the markets with a rate hike earlier this month.

The meeting minutes indicated that the decision was a close call between a hike and a pause, with high inflation being a key factor in the decision to raise rates. With core inflation falling sharply, the RBA may have the excuse it needs to take a pause and provide some relief to consumers and businesses who are groaning under the weight of high rates.

In the US, there were further signs of a strong economy. Durable Goods Orders and New Home Sales were higher and beat expectations, and Conference Board Consumer Confidence jumped in June from 102.5 to 109.7, its highest level since January 2022. These strong releases will provide support for the hawkish Fed, which has signalled that it plans to raise rates twice more in the coming months.

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AUD/USD Technical

• There is resistance at 0.6729 and 0.6822
• 0.6593 and 0.6518 are providing support

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