AUD/USD extends the decline from session highs on dismal Aussie CPI data

• AUD/USD sheds 8 pips as Aussie CPI misses estimates. 
• Below-forecast Trimmed mean CPI validates RBA’s dovish stance. 
• A resurgence of coronavirus cases and fiscal impasse in the US could weigh over the AUD.

AUD/USD fell from 0.7160 to 0.7152, extending the decline from the session high of 0.7174 after Australia reported a decline in consumer inflation in the second quarter. 

The cost of living in Australia, as represented by the Consumer Price Index (CPI), fell 1.9% quarter-on-quarter in the second quarter versus expectations for a 2% decline and down from the preceding quarter’s 0.3% rise. The annualized figure came in at -0.3% versus expectations for -0.4% and 2.2% previous. 

Meanwhile, RBA’s Trimmed Mean CPI fell 0.1% quarter-on-quarter, missing the forecast of a 0.1% rise following the first quarter’s 0.5% increase. The annualized number printed at 1.2% compared to an estimate of 1.4% and down from the first quarter’s 1.8%. 

A drop in inflation was expected, given the economic activity had come to a standstill in April and May due to the coronavirus-induced lockdown. The below-forecast Trimmed Mean CPI validates the RBA’s dovish tone and may keep the AUD under pressure during the day ahead. 

Additional bearish pressures may stem from the resurgence of virus cases in Australia and other parts of the world and fiscal impasse in the US. 

As per the latest reports, the Australia state of Queensland is declaring all of Greater Sydney a COVID-19 hotpot effective 1 a.m local time on Saturday. The US cases have past-4.0 million whereas Victoria, China, and Spain have recently reported worrisome growth in cases. 

Meanwhile, the US Congress is struggling to approve additional coronavirus stimulus package even as unemployment claim benefits are set to expire this week. 

And while President Trump tweeted early Wednesday that the coronavirus vaccine may be approved soon, so far, that has failed to put a bid under the AUD and so have dovish Federal Reserve expectations. The Fed is widely expected to sound dovish on Wednesday, leading to a deeper drop in the US 10-year real or inflation-adjusted yields. 

Technical levels