AUD/USD grinds higher past 0.6750 amid pre-Fed anxiety despite softer US inflation

• AUD/USD seesaws around the highest level in five weeks, prods four-day uptrend.
• US inflation underpins hopes of Fed’s inaction but doves are unconvinced and challenge the optimists, as well as AUD/USD bulls.
• Mixed sentiment about China, RBA also check the Aussie pair buyers at multi-day peak.
• Light calendar at home allows cautious mood to stop buyers; Fed’s economic forecasts, dot-plot and Powell’s Speech eyed.

AUD/USD portrays the typical pre-Fed anxiety as it dribbles around 0.6770 amid the early hours of Wednesday, after refreshing the monthly high the previous day. That said, the Aussie pair cheered downbeat prints of the US inflation data, as well as the firmer sentiment the previous day, to refresh the five-week high before retreating from 0.6806. However, the market’s expectations that the Fed hawks won’t easily leave the table challenge the Aussie pair buyers of late.

The latest US inflation data came in mixed for May and weighed on the US Dollar, following the initial corrective bounce. That said, the headline Consumer Price Index (CPI) drops more-than-expected and prior releases to 0.1% MoM and 4.0% YoY. However, the Core CPI, known as the CPI ex Food & Energy, matches 0.4% monthly and 5.3% yearly forecasts. It’s worth noting that the US headline CPI dropped to the lowest since March 2021 and hence justifies the market’s expectations of the US Federal Reserve (Fed) hawkish halt, which in turn should have weighed on the US Dollar and allow the AUD/USD to grind higher.

That said, the CME’s FedWatch Tool suggests more than 70% chance of the US Federal Reserve’s (Fed) no rate hike during today’s monetary policy meeting. With this, the US Dollar Index (DXY) dropped to the lowest levels in three weeks, taking the Gold Price down with it, before bouncing off 103.05.

Apart from the US inflation and Fed concerns, the People’s Bank of China’s (PBoC) rate cut also allowed the AUD/USD buyers to remain happy, due to the Aussie-China ties. In doing so, the pair traders ignored mixed data at home, as well as fears that the Reserve Bank of Australia (RBA) has limited scope to fuel the rates further towards the north.

While portraying the mood, Wall Street cheered downbeat US inflation and hopes of no rate hike from the Fed but the US Treasury bond yields remain firmer. That said, the US 10-year Treasury bond yields rose to a 13-day high of 3.83% whereas the two-year counterpart poked the highest levels in three months with 4.70% mark before easing to 4.67% in the last hours.

Looking ahead, the recently firmer yields join the downbeat US inflation to prod the AUD/USD bulls. Hence, even if the Fed’s status quo is almost given, the pair traders will pay attention to the US central bank’s economic forecasts, dot-plot and Chairman Jerome Powell’s press conference for clear directions.

Technical analysis

Despite the latest retreat, the AUD/USD pair remains well beyond the 200-day Exponential Moving Average (EMA) and the previous resistance line from mid-February, respectively near 0.6755 and 0.6730, which in turn keeps the buyers hopeful.