AUD/USD: Pressured towards 0.7700 after US inflation showdown

AUD/USD bears catch a breather, keeping the reins at the weekly bottom around 0.7720, during early Thursday morning in Asia. Having begun Wednesday on a back foot, mainly on the pre-CPI caution and geopolitical risks, the Aussie pair dropped the most since late February after the US Consumer Price Index (CPI) jumped above the feared forecast.

A bumpy road for the Fed?

Wednesday’s CPI not only crossed the 3.6% YoY forecast but doubled more than the US Federal Reserve’s (Fed) 2.0% target while flashing a 4.6% figure, reaching the highest since 2008. It should, however, be noted that the details suggest a heavy run-up in the used car and truck even as other components also rose.

Although the inflation data raised doubts over the US central bank’s future actions and ability to convince markets amid expectations of further stimulus, the policymakers may rely on CPI details to defend easy money.

“We do not expect the Fed to respond to one month’s numbers. But, against the backdrop of unprecedented fiscal and monetary stimulus, the data do call into question the extent of current stimulus, the risks of overheating and how quickly inflation will start to recede. As such, fixed income markets are likely to remain unsettled for the foreseeable future,” said Australia and New Zealand Banking Group (ANZ).

Elsewhere, Australia signed a deal for 25 million jabs with Moderna as the Oz nation battles vaccine shortage while having Pfizer-BioNTech and AstraZeneca in their stores. Further, geopolitics in Gaza and rising covid woes in Asia offer extra catalysts to direct the markets but failed versus the key US data.

Against this backdrop, US equities drop for the third consecutive day whereas the US 10-year Treasury yields jumped the most in two months.

Looking forward, US Weekly Jobless Claims and Producer Price Index (PPI) for April may offer extra direction to the US dollar while Aussie Consumer Inflation Expectations for May, forecast 3.6% versus 3.2%, could provide fresh impulse. Above all, chatters surrounding the covid, stimulus and Fed become the key.

Technical analysis

Although a break of 0.7820 keeps AUD/USD sellers hopeful, a convergence of 100-day SMA and an ascending support line from April 01, around 0.7720, becomes a tough nut to crack for the bears.