A modest USD weakness assisted AUD/USD to stage a modest bounce from two-week lows.
Softer-than-expected US consumer inflation figures exerted additional pressure on the USD.
Higher US bond yields helped limit any deeper USD losses and capped the upside for the pair.

The AUD/USD pair managed to recover a major part of its intraday losses to two-week lows and climbed back above mid-0.7300s post-US CPI report.

The pair came under some renewed selling pressure on Tuesday after the Reserve Bank of Australia (RBA) Governor Philip Lowe downplayed speculations for an earlier than expected interest rate hike. However, a modest US dollar weakness, along with the underlying bullish sentiment extended some support to the perceived riskier aussie and helped limit any deeper losses.

The USD lost some additional ground following the release of softer-than-expected US consumer inflation figures. According to the data published by the US Bureau of Labor Statistics, the headline CPI misses market expectations and decelerated to 0.3% in August from 0.5% in the previous month. On yearly basis, the CPI edged lower to 5.3%, as anticipated.

More importantly, core inflation, which excludes food and energy prices, also fell short of consensus estimates and recorded a modest 0.1% rise during the reported month. The yearly core CPI decelerated to 4% from 4.3% in July and dashed hopes for an imminent Fed taper announcement at the upcoming monetary policy meeting on September 20-21.

Investors, however, still seem convinced that the Fed would eventually begin rolling back its massive pandemic-era stimulus later this year. This was reinforced by a goodish intraday move up in the US Treasury bond yields, which acted as a tailwind for the greenback and kept a lid on any meaningful upside for the AUD/USD pair, at least for now.

This makes it prudent to wait for some strong follow-through buying before confirming that the recent pullback from the highest level since mid-July has run its course and place aggressive bullish bets around the AUD/USD pair.

Read More