AUDUSD seesaws around seven-week high above 0.6600 after US inflation-led rally

• AUDUSD bulls take a breather after rising the most in 11 years.
• Hawkish Fed bets recede on softer US inflation, the US Dollar drowned.
• Equities also cheered downbeat US CPI for October and underpinned the run-up.
• Preliminary readings of the US Michigan Consumer Sentiment Index for November will be important for fresh impulse.

AUDUSD stays defensive around 0.6620, following the heaviest daily run-up since October 2011, as bulls seek more clues to extend the previous day’s rally during early Friday. That said, the Aussie pair jumped the most in 11 years on Thursday after the US Consumer Price Index (CPI) pushed back hawkish expectations from the US Federal Reserve (Fed).

US CPI for October surprised markets by declining to 7.7% YoY, the lowest since last March, versus 8.0% expected and 8.2% prior. More importantly, the Core CPI dropped to 6.3% compared to 6.5% market forecasts and 6.6% previous readings.

Following the data, Dallas Federal Reserve President Lorie Logan said that October CPI inflation data is a welcome relief while adding that (it) may soon be appropriate to slow pace of rate increases. On the same line, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday that the US Federal Reserve could slow the rate hike pace in the coming months, as reported by Reuters. It should be noted that Kansas City Federal Reserve President Esther George, Federal Reserve Bank of Cleveland President Loretta Mester and San Francisco Fed President Mary Daly also recently promoted easy rate hikes for future meetings.

The much-needed fall in the US inflation triggered a rally on Wall Street as S&P 500 rose 5.54% and Nasdaq rallied 7.35% on a day, not to forget the 3.70% daily gains of the Dow Jones. On the other hand, the US 10-year Treasury yields slumped to a five-week low of 3.80%, which in turn drowned the US Dollar Index (DXY) towards testing the lowest levels in two months. It’s worth mentioning that the chance of the Fed’s 50 basis points (bps) rate hike in December now has around 80% probability, as per the CME’s FedWatch Tool, versus around 55% just following the last week’s Fed meeting.

Alternatively, multiple officials from the Reserve Bank of Australia (RBA) confirmed the need for softer rate hikes the previous day and teased AUDUSD bears. Additionally challenging the pair buyers are the looming covid concerns in China. However, Australia’s Consumer Inflation Expectations rose to 6.0% for November versus 5.7% expected and 5.4% prior.

Moving on, the first readings of the US Michigan Consumer Sentiment Index (CSI) for November, expected 59.5 versus 59.9 prior, will be closely eyed for clear AUDUSD directions amid a light calendar at home.

Technical analysis

AUDUSD stays on the bull’s radar, despite the latest inaction, unless it drops back below the 0.6500 support confluence, comprising the previous resistance line from August and the 50-DMA.