AUD/USD retreats towards 0.6600 after US inflation data

• AUD/USD drops sharply to 0.6600 as US Dollar rises following US CPI
• The US inflation data has dented market expectations of Fed rate cuts at the June meeting.
• The RBA's Sara Hunter warned of the deepening cost of living crisis.

The pair AUD/USD falls to round support at 0.6600 as warmer-than-expected US Consumer Price Index (CPI) data for February has dented the antipodean appeal. The pair weakened as US inflation data has improved the appeal for the US Dollar.

The appeal of risk currencies has waned as investors rush to safe-haven assets. The US Dollar Index (DXY) recovers in a V shape to 103.30 as expectations of the Federal Reserve (Fed) cutting interest rates at the June meeting could fade. US 10-year Treasury yields have risen to around 4.15%.

The inflation data is expected to increase uncertainty about Fed rate cuts. Last week, Fed Chair Jerome Powell said in his testimony before Congress that it would be inappropriate to start lowering interest rates before having the conviction that inflation will sustainably return to the 2% objective. Powell also said the central bank is not far from achieving that conviction, but February inflation data tells a different story.

Market participants will focus on the US Producer Price Index (PPI) and monthly retail sales data for February, due to be released on Thursday.

On the Australian front, Reserve Bank of Australia (RBA) Deputy Governor Sarah Hunter said: “For some households, interest rate rises are also challenging and difficult, but inflation is the biggest problem. ballast,” at the Australian Financial Review business summit in Sydney in the Asian session on Tuesday, Bloomberg reported.

Next week, the RBA will announce the monetary policy decision in which policymakers are expected to keep the official cash rate (OCR) unchanged at 4.35%.