AUD/USD plunges to near 0.7080, safe-haven appeal improves

• AUD/USD has tumbled to near 0.7081 on a souring market mood.
• Above-expectation Australian inflation has failed to support aussie.
• The DXY is soaring sharply amid uncertainty ahead of the Fed meeting.

The AUD/USD pair has tested Wednesday’s low at 0.7101 after slippage and has resumed scaling lower amid negative market sentiment. The pair is continuously declining in the last five trading sessions as the greenback has been underpinned ahead of the interest rate decision announcement by the Federal Reserve (Fed) next week.

Interest rate hike expectations for the Fed are on the rooftop as the US Consumer Price Index (CPI) figure of 8.5% is not going to be handled easily by other quantitative measures. It would not be wrong to claim that along with a jumbo rate hike, Fed can also schedule balance sheet reduction to squeeze liquidity from the market vigorously.

Rising odds of a 50 basis point (bps) interest rate hike by the Fed has pushed the US dollar index (DXY) to much higher levels. The DXY has crossed 103.50 swiftly, is continuing its five-day winning streak, and is expected to reclaim a two-decade high at 103.82 sooner.

On the Aussie front, a higher CPI figure has failed to provide a cushion to the antipodean. The Australian Bureau of Statistics reported yearly Australian inflation at 5.1%, well above the forecast of 4.6% and the prior print of 3.5%. This has elevated the odds of a rate hike by the Reserve Bank of Australia (RBA) for the very first time post the pandemic. In their last meet, RBA Governor Philip Lowe dictated that the RBA doesn’t see any price pressures that could compel the central bank to elevate rates. It looks like the data-dependent approach of the RBA will be triggered next week.