AUD/USD ticks down to near 0.6700 ahead of US inflation data

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The AUD/USD pair trades marginally lower to near 0.6700 during the European trading session on Tuesday. The Aussie pair edges down as the US Dollar (USD) ticks higher slightly ahead of the United States (US) Consumer Price Index (CPI) data for December, which will be published at 13:30 GMT.

AUD/USD edges down to near 0.6700 in the countdown to the US CPI data for December.
The US headline inflation is estimated to have grown steadily at an annualized pace of 2.7%.
This week, the major trigger for antipodeans will be China’s Trade Balance data.

During the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, edges up to near 99.00. The DXY corrected sharply on Monday from its monthly high of 99.26 after Federal Reserve (Fed) Chair Jerome Powell was charged with criminal charges over mismanaging funds allocated to the renovation of Washington’s headquarters.

As measured by the CPI, the US headline inflation is expected to have grown steadily by 2.7% Year-on-year (YoY). In the same period, the core inflation – which excludes volatile food and energy items – is seen accelerating to 2.7% from the prior reading of 2.6%. On a monthly basis, both the headline and the core CPI rose by 0.3%.

Signs of price pressures cooling down are expected to boost dovish speculation for the Fed’s monetary conditions in the near term. However, hot figures are unlikely to weigh on them significantly as officials have been more concerned about weak job market conditions.

Meanwhile, the Australian Dollar (AUD) trades broadly calm during European trading hours. Going forward, the major trigger for the Aussie dollar will be China’s Trade Balance data for December, which will be published on Wednesday. The data is expected to show that Imports by Beijing grew at a moderate pace of 0.9% against November’s reading of 1.9%. The impact of China’s international trade data remains significant for the Australian Dollar, given that the Australian economy relies heavily on its exports to Beijing.

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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