The US annual inflation rate is predicted to remain at 3.4% in May, while the core inflation rate is expected to soften from 3.6% to 3.5%. These numbers are crucial as they can influence investor expectations of a September Fed rate cut. A more hawkish Fed rate path could lead to increased borrowing costs and decreased disposable income for consumers. This, in turn, might impact consumer spending and dampen demand-driven inflation.
The US dollar is likely to show heightened sensitivity to the Consumer Price Index (CPI) Report. The upcoming FOMC interest rate decision, along with economic projections and the subsequent press conference, will be closely monitored by investors. While economists anticipate the Fed to maintain its stance in June, any hints of a more hawkish tone in the economic projections could lead to a breakout in the US dollar.
The AUD/USD currency pair is expected to experience fluctuations based on the US inflation numbers and the FOMC economic projections. A scenario with higher-than-expected inflation figures and a more hawkish economic outlook could shift the monetary policy divergence in favor of the US dollar. Currently, the AUD/USD is trading above the 50-day and 200-day Exponential Moving Averages (EMAs), indicating a bullish trend. If the pair manages to break above the $0.67003 resistance level, it could target the $0.67500 handle.
Technical Analysis
On the technical side, a break below the 50-day EMA in AUD/USD could open the doors for a test of the 200-day EMA and the $0.65760 support level. The Relative Strength Index (RSI) reading of 48.35 suggests a neutral stance for the AUD, and a drop below the $0.65500 level might signal oversold conditions in the market.
Apart from the US inflation data and FOMC announcements, market participants will also keep an eye on inflation figures from China. Any developments in these regions could add further volatility to the AUD/USD pair. It is essential for traders and investors to consider multiple factors before making trading decisions to navigate through the complex landscape of the currency market.