AUD/USD Trades Weaker as Markets Await Inflation Data

AUD/USD Trades Weaker as Markets Await Inflation Data

The AUD/USD pair remains on the defensive during the early Asian session on Monday. With the markets closed in China for the Lunar New Year holidays, trading volume is noticeably light. Traders are now turning their attention to the risk sentiment in the new week.

Last week, several Federal Reserve (Fed) officials emphasized that further evidence of progress on inflation is needed before considering any rate cuts. This cautious stance indicates that the Fed is prioritizing the need for stability in the economy. However, these statements have also created some uncertainty in the market.

On the other hand, the Reserve Bank of Australia (RBA) surprised the market with a more hawkish bias than expected. RBA governor Michele Bullock stated that the board has not ruled out a further increase in interest rates. However, they have not committed to it either. This mixed signal from the RBA adds to the overall cautious sentiment surrounding the AUD/USD pair.

The January Consumer Price Index (CPI) inflation data, which will be released on Tuesday, is eagerly awaited by traders. This data is expected to provide valuable insight into the state of inflation in the economy.

The initial estimate for the December CPI figures showed a 0.3% increase from the previous month. However, the revised figures released by the Bureau of Labor Statistics revealed a slightly weaker growth of 0.2%. This discrepancy raises concerns about the inflationary pressure in the economy.

The January CPI data will be key in determining the direction of interest rates. It is projected to show a 0.2% month-on-month increase and a 3.0% year-on-year increase. The Core CPI, which excludes volatile food and energy prices, is estimated to show a 0.3% monthly increase and a 3.8% yearly increase.

The market is likely to trade with low volume due to the ongoing Lunar New Year holidays. Traders will closely monitor the release of CPI inflation data on Tuesday for further guidance. Additionally, multiple Fed speakers scheduled for this week could provide additional insights into the central bank’s stance on interest rates.

The concern about deflation in China adds to the overall sentiment surrounding the Australian Dollar (AUD), which may act as a headwind for the AUD/USD pair. The combination of mixed signals from the Fed and the RBA, along with lingering concerns about inflation, creates an uncertain trading environment for the currency pair.

As the market awaits the forthcoming data and speeches, traders should exercise caution and closely monitor any developments that may impact the AUD/USD pair.

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