- AUD / USD updated weekly lows in reaction to the US CPI report.
- The CPI rose 0.6% in May and the annual rate rose from 4.2% to 5%.
- Investors still seem unconvinced that the Fed can begin to reduce its bond purchases.
The pair AUD/USD it reversed an instinctive decline to weekly lows and updated daily highs, around 0.7750 in reaction to higher than expected US inflation figures.
The pair witnessed some selling and hit an intraday low of 0.7718 following the release of the US CPI report for May. The CPI eased to 0.6% month-on-month in May, compared to consensus estimates that pointed to a 0.4% drop from 0.8% previously. This was enough to raise the annual rate to 5.0%, a big surprise to the upside for the second month in a row.
Added to this, the core CPI increased 0.7% month-on-month and 3.7% year-on-year, both exceeding market expectations. The data pressured politicians to defend the transitory narrative and fueled speculation that the Fed could reduce its bond purchases sooner rather than later. Investors, however, preferred to wait for evidence to see if inflationary pressure is sustainable.
This was evident by a quick reversal of market knee jerk reaction and the emergence of some new selling around the USD. This, in turn, helped the AUD / USD to rebound almost 30 pips from daily lows. With that said, it will be interesting to see if the bulls can capitalize on the move or if the pair finds new offers at higher levels.
Technical levels
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