AUD/USD surrenders some gains as focus shifts to US Inflation data

• AUD/USD aims stability above 0.6700 ahead of us Inflation data.
• A sharp decline in the Australian monthly CPI indicates that the RBA’s ‘rate-tightening’ campaign has come to an end.
• Investors await the speech from Fed Williams for further guidance on interest rates.

The AUD/USD pair struggles to sustain above the round-level support of 0.6700 in the late European session. The Aussie asset holds majority of intraday gains as the US Dollar Index (DXY) has come under pressure ahead of the United States Consumer Price Index (CPI) data for December.

The S&P500 is expected to open on a subdued note, considering overnight futures. The market mood could turn cautious as investors await the US CPI data, which will guide further action in the FX domain. The USD Index is slightly lower around 102.50 and 10-year US Treasury yields have dropped to 3.99%.

Investors will keenly focus on the US inflation data as it will guide whether the Fed will discuss about cutting interest rates from March. As per the preliminary consensus, the monthly and core headline inflation rose by 0.2% and 3.2% respectively. Monthly core CPI grew at a steady pace of 0.3% while the annual data decelerated to 3.8% from the former reading of 4.0%.

If the inflation report turns out hotter-than-projected, bets in favour of rate cuts from March would ease further. As per the CME Fedwatch tool, the chances for first rate cut in March are at 66% from 90% a week ago.

Meanwhile, investors await the speech from New York Fed Bank President John Williams, which is expected at 20:15 GMT. Investors will keenly watch whether Fed Williams will maintain a restrictive interest rate stance or shift to endorsing early rate cuts.

On the Australian Dollar front, a sharp fall in monthly Consumer Price Index (CPI) has strengthened hopes that the Reserve Bank of Australia (RBA) has reached to an endgame. The monthly CPI data softened to 4.3% against expectations of 4.4% and the prior reading of 4.9%.