AUD/USD plunges below 0.7200 amid souring market mood, Aussie CPI in focus

• AUD/USD has tumbled below 0.7200 on advancing odds of a rate hike by the Fed.
• The negative market sentiment has improved the appeal of safe-haven assets.
• Aussie yearly inflation is seen higher at 4.6% against the prior print of 3.5%.

The AUD/USD pair is witnessing a steep fall in the Asian session as the negative market impulse deepens on advancing chances of a mega-rate hike by the Federal Reserve (Fed) in May. The asset has slipped below the round level support of 0.7200 and is eyeing more downside amid broader weakness in the risk-sensitive currencies.

From the testimony of Fed chair Jerome Powell at the International Monetary Fund (IMF) meeting on Thursday, it is ‘loud and clear that a 50 basis point (bps) interest rate hike by the Fed is on the cards. The monetary policy announcement by the Fed in May will feature a half-of-a-percent rate hike to contain the inflation mess. Along with this, it is highly likely that the Fed could announce a balance sheet reduction program with the agenda of reducing liquidity from the market at a sheer pace. The US dollar index (DXY) has printed a fresh two-year high at 101.33 on Friday as investors are pouring funds into the greenback on uncertainty over the expectation of a hawkish policy environment remaining this year.

On the Aussie front, investors are focusing on the release of Wednesday’s Consumer Price Index (CPI). The yearly Aussie inflation is likely to land at 4.6% against the prior print of 3.5%. While the preliminary reading of quarterly CPI is 1.7% against the previous figure of 1.3%. The Reserve Bank of Australia (RBA) has not elevated its interest rate yet. Therefore, a higher inflation print this time could force the RBA to dictate a constructive interest rate decision.