AUD/USD rebounds from 0.6920 after inflation-led weakness, spotlight is on Fed

• AUD/USD has attempted a reversal around 0.6920 as a hangover of higher Aussie inflation vanished.
• The overall Aussie inflation rate for Q2CY22 has climbed to 6.1% vs. 5.1% recorded earlier.
• Investors are likely to dump DXY as a rate hike announcement by the Fed has been discounted.

The AUD/USD pair has picked bids around 0.6920 after plummeting from near 0.6960 in the Asian session. The asset is regaining strength as investors have digested the volatility produced after the release of the Australian inflation data.

The Australian Bureau of Statistics has reported the overall inflation rate at 6.1%, minutely lower than the estimates of 6.2% but remained extremely higher than the prior release of 5.1%. Also, the trimmed CPI has increased to 4.9%, higher than the expectations and the prior release of 4.7% and 3.7% respectively.

As the inflation rate for the second quarter of CY2022 has almost met expectations, the odds of a consecutive 50 basis points (bps) rate hike by the Reserve Bank of Australia (RBA) have advanced. Price pressures have soared in this particular period significantly and the RBA needs to show up with more rate hikes unhesitatingly.

Meanwhile, the US dollar index (DXY) has given a downside break of the inventory distribution formed in a narrow range of 107.00-107.10. A downside break in the DXY indicates that the market participants have already discounted the rate hike expectations by the Federal Reserve (Fed). As per the market consensus, the Fed will hike the interest rates by 75 basis points (bps) as growing odds for a slowdown in the US economy will force Fed chair Jerome Powell to drop the option of a 1% rate hike announcement.