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  • Inflation in Australia ticked up to 1.8% in fourth quarter.
  • AUD struggles to capitalize on declining odds of a RBA rate cut in February.
  • US Dollar Index stays in green above 98 ahead of FOMC policy announcements.

The AUD/USD pair rose to 0.6780 area following the inflation figures from Australia but struggled to push higher with the greenback staying strong on Wednesday. As of writing, the pair was down 0.18% on a daily basis at 0.6750. 

Lower probability of a RBA rate cut in February

Earlier on Tuesday, the data published by the Australian Bureau of Statistics revealed that annual inflation, as measured by the Consumer Price Index, ticked up to 1.8% in the fourth quarter from 1.7%. Additionally, the Reserve Bank of Australia’s Trimmed Mean CPI in the same period stayed unchanged at 1.6% to come in higher than the market expectation of 1.5%.

Following the data, the overnight index swap (OIS) market showed that investors are now pricing a 12% probability of a 25 basis points RBA rate cut next Tuesday.

On the other hand, the US Dollar Index, which closed the previous four trading days in the positive territory, continues to stay above the 98 mark ahead of the FOMC’s monetary policy announcements to keep the pair’s upside capped.

Previewing the FOMC event, “with the Fed expected to maintain the status quo, we are not looking for a significant FX market reaction, however,” said TD Securities analysts. “Here, the USD still remains the best of a bad lot particularly as FX is preoccupied with virus contagion fears.”

Technical levels to watch for