AUD/USD retreats to 0.6600 on hot US Inflation data

• AUD/USD falls sharply to 0.6600 as US Dollar rises after stubborn US inflation data.
• The hot US inflation report has dented market expectations for Fed rate cuts in the June meeting.
• RBA Hunter warned about the deepening cost-of-living crisis.

The AUD/USD pair falls to the round-level support of 0.6600 as the hotter-than-expectations United States Consumer Price Index (CPI) data for February has dented appeal for antipodeans. The Aussie asset weakens as stubborn US inflation data has improved the appeal for the US Dollar.

The appeal for risk-perceived currencies has dampened as investors rush for safe-haven assets. The US Dollar Index (DXY) delivers a V-shape recovery to 103.30 as expectations that the Federal Reserve (Fed) will reduce interest rates in the June meeting could wane. 10-year US Treasury yields have climbed to near 4.15%.

The hot inflation data is expected to increase uncertainty over Fed rate cuts. Last week, Fed Chair Jerome Powell said in his Congressional testimony that it would be inappropriate to start lowering interest rates before gaining conviction that inflation will sustainably return to the 2% target. Powell also said that the central bank is not far from gaining that conviction, but the inflation data for February tells a different story.

Going forward, market participants will shift focus to the US Producer Price Index, (PPI) and monthly Retail Sales data for February, which will be published on Thursday.

On the Australian front, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter said, “For some households, interest rate hikes are also challenging and difficult, but inflation is the single biggest drag,” at the Australian Financial Review business summit in Sydney in Tuesday’s Asian session, reported by Bloomberg.

Next week, the RBA will announce the monetary policy decision in which policymakers are expected to keep the Official Cash Rate (OCR) unchanged at 4.35%.