AUD/USD picks demand below 0.6350, downside remains favored ahead of US CPI

• AUD/USD has sensed buying interest below 0.6350, however, the downside looks likely.
• The upbeat US NFP has strengthened the odds of a 75 bps rate hike by the Fed.
• Due to weaker gasoline prices, the headline US CPI may decline to 8.1%.

The AUD/USD pair has rebounded after slipping below the immediate support of 0.6350 in the Asian session. The outlook of the asset doesn’t seem bullish as the market mood is still in a bad shape. Friday’s upbeat US Nonfarm Payrolls (NFP) data extended the US dollar index (DXY)’s recovery and sent the S&P500 into the grip of beats.

In Tokyo, the DXY has crossed the previous week’s high at around 112.88 and is looking to add more gains amid soaring hawkish Federal Reserve (Fed) policy bets. On Friday, the US NFP released at 263k vs. the expectations of 250k. This has bolstered the odds of a fourth consecutive 75 basis point (bps) interest rate hike. Firmer economic fundamentals and a tight labor market are always crucial for the central bank to announce rate hikes unhesitatingly.

Escalating odds of a 75 bps rate hike have strengthened yields. The 10-year US Treasury yields reached 3.9% and displayed a four-day winning streak.

Going forward, investors will focus on the US Consumer Price Index (CPI) data, which will release on Thursday. As per the preliminary estimates, the headline inflation will drag to 8.1% vs. the prior release of 8.5%. While the core CPI that excluded food and energy prices will improve to 6.5% vs. the prior release of 6.3%. It looks like accelerating interest rates by the Fed are not impacting much, however, weaker US gasoline prices have started impacting the headline price pressures.

Meanwhile, the aussie bulls are awaiting Consumer Inflation Expectations data, which will release later this week. The economic data is seen higher at 5.8% vs. the prior release of 5.4%. This may force the Reserve Bank of Australia (RBA). RBA Governor Philip Lowe escalated its Official Cash Rate (OCR) by 25 bps to 2.6% and is aiming to push it to the targeted figure of 3.8%.