AUD/USD slips below 0.6500, nearly two-week low amid notable USD demand

• AUD/USD meets with heavy supply following the release of the softer Australian CPI report.
• A strong pickup in the USD demand exerts additional pressure and contributes to the fall.
• Traders now look to the US Q4 GDP for some impetus ahead of the US PCE on Thursday.

The AUD/USD pair comes under intense selling pressure following the previous day's directionless price action and dives to a nearly two-week low during the first half of the European session. Spot prices slide back below the 0.6500 psychological mark in the last hour and seem vulnerable to waken further amid broad-based US Dollar (USD) strength.e

The initial market reaction to Tuesday's disappointing US Durable Goods Orders turns out to be short-lived amid expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. Furthermore, a turnaround in the global risk sentiment – as depicted by a pullback in the equity markets – benefits the Greenback's relative safe-haven status and drives flows away from the perceived riskier Aussie.

The Australian Dollar (AUD), on the other hand, is undermined by domestic consumer inflation figures, which held steady at a two-year low in January as against consensus estimates for an uptick. In fact, the Australian Bureau of Statistics (ABS) reported that the headline CPI rose by the 3.4% YoY rate during the reported month, matching the lowest reading since November 2021 touched in December.

Adding to this, the Core CPI, which excludes volatile items such as fuel, fresh food and holiday travel, eased from the 4.2% YoY rate seen in the previous month to 4.1% in January. The data fuelled speculations that price pressures could abate more rapidly than expected and reduce the possibility of another interest rate hike by the Reserve Bank of Australia (RBA), which, in turn, weighs heavily on the AUD.

Meanwhile, the flight to safety triggers a fresh leg down in the US Treasury bond yields and might hold back the USD bulls from placing aggressive bets. This could lend support to the AUD/USD pair ahead of the crucial US Personal Consumption Expenditure (PCE) Price Index on Thursday. In the meantime, traders on Wednesday will take cues from the prelim US Q4 GDP print and Fed speaks for some impetus.