AUD / USD bounces away from two-week lows after US CPI, still bearish near 0.7350

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  • A modest USD weakness helped AUD / USD make a modest bounce from the two-week lows.
  • Softer-than-expected US consumer inflation figures put additional pressure on the USD.
  • Rising US bond yields helped limit the USD’s deeper losses and put a cap on the pair’s upside.

The pair AUD/USD managed to recoup a significant portion of its intraday losses to two-week lows and came back climbing towards 0.7350 after the US CPI report.

The pair came under further selling pressure on Tuesday after Reserve Bank of Australia (RBA) Governor Philip Lowe downplayed speculation of an earlier-than-expected rise in interest rates. However, a modest US dollar weakness, coupled with 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 data released by the US Bureau of Labor Statistics, the headline CPI disappointed market expectations and slowed to 0.3% in August from 0.5% the previous month. On an annual basis, the CPI fell to 5.3%, as anticipated.

More importantly, core inflation, which excludes food and energy prices, also failed to meet consensus estimates and posted a modest 0.1% increase during the reported month. The annual core CPI slowed to 4% from 4.3% in July and put an end to hopes of an imminent announcement of the Fed’s phase-down at the next monetary policy meeting on September 20-21.

However, investors still appear to be convinced that the Fed will eventually begin to reverse its massive pandemic-era stimulus later this year. This was bolstered by a good intraday move up in US Treasury yields, which acted as a tailwind for the dollar and kept any significant rise in AUD / USD limited, at least for now.

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

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