US inflation report helps AUD eye break above US$0.68

Daily Currency Update

The Australian dollar edged higher through trade on Tuesday, consolidating a break above US$0.6750 while toying with a move above US$0.68. After a relatively quiet start to the week, there has been ample newsflow and headline data to digest through the last 24 hours. A surprise Chinese rate cut, stronger than anticipated UK labour market data and a steady US CPI inflation report helped fuel gains across equity markets and risk assets and push global rates higher. People's Bank of China cut its reverse repo rate elevated concerns surrounding China's recovery and triggered further yuan weakness limiting AUD upside. US inflation data printed largely in line with market expectations, driven lower by a correction in gasoline prices. Annual inflation fell to its lowest level since March 2021, elevating calls for the Fed to skip hiking rates when it meets later this week. OIS market pricing shows just a 3 basis point of tightening at the Federal Open Market Committee meeting tomorrow dampening demand for the USD and helping elevate the AUD. Having eyed a break above US$0.68 after touching intraday highs at US$0.6807 AUD direction will be driven by tonight's all-important Federal Open Market Committee update. While consensus is for policy makers to leave rates on hold market pricing suggests at least one more rate hike in either July or August, thus our attentions are keenly attuned to the median dot plot and tone of Fed President Jerome Powell's post-meeting press conference. Any hint that suggests the current tightening cycle is nearing its end should help elevate the demand for the AUD.