AUD/USD retreats sharply from daily high, back around mid-0.6900s post-US CPI

• AUD/USD surrendered a major part of its intraday gains in reaction to stronger US CPI print.
• The US CPI report reaffirmed aggressive Fed rate hike bets and boosted demand for the USD.
• A turnaround in the risk sentiment also benefitted the safe-haven buck and exerted pressure.

The AUSD/USD pair fell over 60 pips in reaction to hotter-than-expected US consumer inflation figures and was last seen trading with only modest intraday gains, just below mid-0.6900s.

The Bureau of Labour Statistics reported this Wednesday that the headline US CPI rose 0.3% MoM in April as against consensus estimates pointing to a reading of 0.2%. The yearly rate also surpassed market expectations and climbed 8.3% during the reported month. Core inflation, which excludes food and energy prices, came in at 0.6% MoM and 6.2% YoY rate as against 0.4% and 6% anticipated, respectively.

The data suggested that inflationary pressures in the world's biggest economy are peaking, though were strong enough to reaffirm market bets for a more aggressive policy tightening by the Fed. In fact, the markets are still pricing in a further 200 bps rate hike for the rest of 2022 amid concerns that China's zero-covid policy and the war in Ukraine might continue to push consumer prices higher.

Apart from this, a turnaround in the global risk sentiment - as depicted by a sharp intraday slide in the equity markets - boosted demand for the safe-haven US dollar and exerted downward pressure on the AUD/USD pair. The emergence of fresh selling at higher levels suggests that the recent downtrend witnessed over the past one month or so might still be far from over and favours bearish traders.

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