- AUD/USD refreshed weekly lows in reaction to hotter-than-expected US CPI report.
- The headline CPI rose 0.6% in May and the yearly rate accelerated to 5% from 4.2%.
- Investors still seem unconvinced that the Fed could begin tapering its bond purchases.
The AUD/USD pair reversed a knee-jerk fall to weekly lows and refreshed daily tops, around mid-0.7700s in reaction to hotter-than-expected US inflation figures.
The pair witnessed some selling and touched an intraday low level of 0.7718 following the release of the US CPI report for May. The headline CPI moderated to 0.6% MoM in May as against consensus estimates pointing to a fall to 0.4% from 0.8% previous. This was enough to lift the yearly rate to 5.0%, a big upside surprise for the second straight month.
Adding to this, the core CPI increased 0.7% MoM and 3.7% YoY, both surpassing market expectations. The data puts pressure on the policymakers to defend the transitory narrative and fueled speculations that the Fed could taper its bond purchases sooner rather than later. Investors, however, preferred to wait for evidence to see if inflationary pressure is sustainable.
This was evident from a quick reversal of the knee-jerk market reaction and the emergence of some fresh selling around the USD. This, in turn, assisted the AUD/USD pair to rebound nearly 30 pips from daily swing lows. That said, it will be interesting to see if bulls are able to capitalize on the move or the pair meets with some fresh supply at higher levels.
