AUD/USD Price Analysis: Soft US Inflation Takes Toll on Dollar

• The dollar exhibited weakness due to unforeseen softness in US inflation data.

• The US consumer price index experienced a slight uptick of only 0.1% last month.

• The People’s Bank of China reduced a short-term lending rate, marking the first decrease in 10 months.

Today’s AUD/USD price analysis is bullish. On Wednesday, the dollar exhibited weakness due to unforeseen softness in US inflation data. Moreover, the data solidified the belief that the Federal Reserve would refrain from implementing an interest rate increase later in the day. 

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Notably, the US consumer price index experienced a slight uptick of only 0.1% in the previous month. Additionally, it recorded its smallest year-on-year growth since March 2021, standing at 4.0%.

Consequently, the likelihood of a quarter-point rate hike in the US was significantly diminished, currently at less than 6%. This represents a substantial reduction of 21% within the preceding 24 hours, as reported by the CME Group’s FedWatch Tool.

Elsewhere, the People’s Bank of China’s recent decision to reduce the seven-day reverse repo rate further bolstered the Aussie. This is the first rate cut in 10 months and has positive implications for Australia as China is a significant market for its resource exports. 

This move aimed to rebuild market confidence and support the sluggish post-pandemic recovery of the second-largest global economy.

Lowering the lending rate suggests the potential for further relaxation of longer-term rates in the upcoming week and beyond. This adjustment is in response to weakening demand and investor sentiment, reinforcing the need for immediate policy measures to stimulate growth and sustain economic momentum.

AUD/USD key events today

Investors will receive more inflation data from the US, but all focus will be on the FOMC meeting. Markets expect that the Fed will leave interest rates unchanged for June.

AUD/USD technical price analysis: Pullback draws closer to robust support.

AUD/USD is in a solid bullish trend, with the price staying above the 30-SMA and the RSI trading near the overbought region. Bulls have held on to control since the price broke above the 30-SMA. The price has paused at the 0.6800 resistance level and is pulling back toward the 0.6750 support. 

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Right below this level is the 30-SMA, which acts as support in an uptrend. With such strong support, the pullback might not go on long before bulls resurface and remove the 0.6800 resistance.

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