AUD/USD advances to 0.6550 as US Dollar eases, Australian Inflation in focus

• AUD/USD moves higher to 0.6550 as the US Dollar falls on the Fed’s confidence in inflation, declining to the 2% target.
• The Fed remains stuck with projections of three rate cuts in 2024.
• Investors await the Australian monthly CPI data for fresh guidance.

The AUD/USD pair rises to 0.6550 in Tuesday’s early New York session. The Aussie asset saw buying interest near the psychological support of 0.6500 as the US Dollar eased.

Federal Reserve policymakers believe that inflation is cooling despite remaining hot in the first two months of this year. This has built downward pressure on the US Dollar. The US Dollar Index (DXY) has corrected modestly from a monthly high of 104.50 to 104.10.

On Monday, Chicago Fed Bank President Austan Goolsbee said in an interview with Yahoo Finance that the inflation situation is uncertain due to higher housing inflation. However, he is confident that the fundamental story of inflation returning to the 2% target has not changed.

Going forward, the US Dollar will dance to the tunes of the market expectations for Fed rate cuts. Fed’s ‘three rate cuts’ view in 2024 has boosted the expectations for the Fed to reduce interest rates from the June policy meeting. The CME FedWatch tool shows that the likelihood of rate cut decision in June has increased to 70% against 60%, recorded before the Fed’s monetary policy.

Meanwhile, upbeat market sentiment has improved the appeal for risk-sensitive assets. Later, the Australian Dollar will be influenced by the Consumer Price Index (CPI) data for February, which will be published on Wednesday. Economists have forecasted that monthly CPI grew at a higher pace of 3.5% against 3.4% in January. This would allow the Reserve Bank of Australia (RBA) to lean towards keeping interest rates higher for a longer period.