Australian dollar slides on hot US inflation report

The Australian dollar has declined sharply on Wednesday. In the North American session, AUD/USD is trading at 0.6515, down 1.7%.

US inflation higher than expected at 3.5%

The US consumer price index has accelerated for a second straight month. The March CPI rose 3.5%, up from 3.2% in February and above the market estimate of 3.4%. This was the highest inflation rate since September. On a monthly basis, CPI remained unchanged in March at 0.4%, higher than the market estimate of 0.4%. The increase in inflation was mainly due to rising energy and shelter costs.

Core CPI, which is closely watched by the Federal Reserve, was unchanged at 3.8% in March and just above the market estimate of 3.7%. Monthly, core CPI rose 0.4%, matching the previous two months and above the market estimate of 0.3%. US inflation has accelerated for a second straight month, a reminder that although inflation appears under control, the final sprint to the 2% target will be a challenge for the Federal Reserve.

The strong inflation report has pushed back expectations on the timing of a first rate cut, propelling the US dollar higher against the major currencies and sending the Australian dollar reeling. The probability of a Fed rate cut in June has dropped from above 50% before the inflation report to 23% afterwards. Investors don’t consider a rate cut to be likely until September.

In Australia, consumer inflation expectations will be released Thursday. The forecast for April stands at 4.1%, down from 4.3% in March, which was the lowest level since October 2021. As well, China releases CPI, which is expected to decline by 0.5% in March, down from 1% in February. A reading below zero would point to deflation and weakness in China’s economy.

AUD/USD Technical

• AUD/USD is testing support at 0.6560 and is putting pressure on support at 0.6500
• 0.6638 and 0.6698 are the next resistance lines

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