AUD/USD wobbles above 0.6500 ahead of US inflation data

AUD/USD hovers slightly above 0.6500 ahead of the US inflation data for October.
Investors expect that Trump’s policies will be inflationary for the US economy.
The Australian Dollar will be guided by the labor market data for October.

The AUD/USD pair trades in a tight range near a three month-low, slightly above 0.6500 in the European trading session on Wednesday. The Aussie pair turns sideways as investors await the United States (US) Consumer Price Index (CPI) data for October, which will be published at 13:30 GMT.

According to the estimates, the headline inflation accelerated to 2.6% from 2.4% in September on year-on-year. In the same period, the core CPI – which strips off volatile food and energy prices – is estimated to have grown steadily by 3.3%. On month, headline and core inflation are expected to have risen at a steady pace of 0.2% and 0.3%, respectively. Investors will pay close attention to the inflation to get cues on the Federal Reserve’s (Fed) likely interest rate action in the December meeting.

The inflation data has regained its mojo lately as investors worry that the United States (US) inflation could rebound again, with a high probability that President-elected Donald Trump could raise import tariffs by 10% and lower corporate taxes in this administration.

On Tuesday, the comments from former Fed official Loretta Mester at the UBS European Conference in London indicated that she agreed with market expectations of fewer rate cuts in 2025 due to a potential tariff hike by Donald Trump. "The market is right," she remarked, "they're probably not going to have as many cuts next year as was assumed or expected in September," CNBC said, Reuters reported.

Meanwhile, the Australian Dollar (AUD) struggles to gain ground despite firm expectations that the Reserve Bank of Australia (RBA) will not start reducing interest rates this year. The RBA still sees upside risks to price pressures with labor market remaining steady. To get cues about the current labor market status, investors will focus on the Employment data for October, which will be published on Thursday. The Unemployment Rate is estimated to have remained steady at 4.1%. The Australian economy is expected to have added 25K new workers, lower than 64.1K in September.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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