Australian Dollar drifts lower after CPI report; focus shifts to Fed decision

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The AUD/USD pair continues with its struggle to conquer the 0.7200 mark and drifts lower following the release of Australian consumer inflation figures during the Asian session on Wednesday.

AUD/USD attracts some sellers following the release of Australian consumer inflation figures.
Geopolitical uncertainties underpin the safe-haven USD and further exert pressure on the pair.
Hawkish RBA bets should limit losses for the Aussie as traders keenly await the FOMC decision.

The AUD/USD pair continues with its struggle to conquer the 0.7200 mark and drifts lower following the release of Australian consumer inflation figures during the Asian session on Wednesday. Spot prices slide to the 0.7170 area in the last hour, though the downside potential seems limited ahead of the crucial FOMC policy decision later today.

The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) rose by 1.4% in Q1, lifting the annual rate to 4.1%. Additional details revealed that the Trimmed Mean CPI rose climbed 0.3% during the January-March period and 3.5% over the year. In the absence of a major surprise from the inflation data, the Australian Dollar (AUD) attracts some sellers amid the cautious market mood due to persistent geopolitical uncertainties.

Meanwhile, the latest data does little to dampen hawkish Reserve Bank of Australia (RBA) expectations. In fact, traders are pricing in a greater chance of a 25-basis-point (bps) rate hike at the upcoming RBA meeting in May. This, along with subdued US Dollar (USD) price action, offers some support to the AUD/USD pair and helps limit the downside. Traders also seem reluctant and opt to wait for the highly anticipated FOMC policy decision, due later today.

Investors will look for cues about the US Federal Reserve's (Fed) future policy path amid worries that the war-driven surge in energy prices will revive inflationary pressures. In the meantime, the lack of progress in US-Iran peace talks and a standoff over the Strait of Hormuz might continue to underpin the USD's reserve currency status. This should cap the AUD/USD pair and warrants some caution before positioning for an extension of a one-month-old uptrend.

Economic Indicator

Quarterly Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a quarterly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The quarterly CPI data series are calculated as the average of the three relevant monthly CPIs. The YoY reading compares prices in the reference quarter to the same quarter a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

Why it matters to traders?

The quarterly Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia (RBA), in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.