AUD/USD defends 0.6600 ahead of Australian Inflation and US Durable Goods Orders data

• AUD/USD has shown some recovery after a fresh five-month low of 0.6614 amid strength in the USD Index.
• The USD index showed a V-shape recovery as investors are worried about interest rate guidance from the Fed.
• A further deceleration in Australian inflation will allow the RBA to stick to its stance of policy-tightening pause.

The AUD/USD pair has shown a minor recovery after printing a fresh five-week low of 0.6614 in the early Asian session. The Aussie asset has rebounded to near 0.6625, however, the downside seems favored considering the strength in the US Dollar Index (DXY) and negative market sentiment.

The USD index showed a V-shape recovery from a fresh weekly low of 101.20 as investors are worried about interest rate guidance from the Federal Reserve (Fed). Next week, the Fed will announce May’s monetary policy in which an interest rate hike by 25 basis points (bps) is widely anticipated and the street was earlier expecting that the Fed will pause its quantitative tightening regime after this interest rate hike.

Meanwhile, fresh recovery in United States economic activities as Manufacturing PMI has landed in expansion territory, the core Consumer Price Index (CPI) is still persistent, and a recovery in the housing market indicate that Fed chair Jerome Powell could remain hawkish while guiding about forward interest rates.

S&P500 settled Tuesday’s session on a bearish note despite upbeat earnings from Microsoft and Google. Banking jitters renewed after First Republic Bank reported a sharp decline in customers’ deposits and it is required to bank fundraising for disbursing loans. The events triggered a risk aversion theme in the overall market.

Going forward, US Durable Goods Orders data will be keenly watched. Monthly the Durable Goods Orders data (March) is seen expanding by 0.8% vs. a contraction of 1.0%.

On the Australian Dollar front, inflation data will remain in focus. As per the consensus, quarterly inflation (Q1) accelerated by 1.3% at a slower pace than the velocity of 1.9% recorded in the last quarter of CY2022. Annual inflation is expected to soften to 6.9% from the former release of 7.8%.

Investors should note that the Reserve Bank of Australia (RBA) paused its rate-hike spell in its April policy meeting. A further deceleration in Australian inflation will allow the RBA to stick to its stance of policy-tightening pause.