Peter Smith
The AUD/USD pair extended its decline to 0.6330 in late European trading on Tuesday, marking its third consecutive day of losses. Investors remain cautious ahead of January's Australian Consumer Price Index (CPI) data, which will be released on Wednesday.
AUD/USD pressured by rising Australian inflation expectations
Market analysts anticipate that the Australian Bureau of Statistics will report increased inflationary pressures. The CPI is expected to rise to 2.6% from December’s 2.5%. If confirmed, this could reinforce expectations that the Reserve Bank of Australia (RBA) will delay any potential interest rate cuts.
Last week, the RBA cut its Official Cash Rate (OCR) by 25 basis points to 4.10%, marking the first rate reduction since November 2020. However, policymakers maintained a cautious tone, emphasizing that inflation risks remain, which could prevent the central bank from further easing monetary policy in the near term.
US Dollar steadies despite Trump’s tariff warnings
The US Dollar (USD) saw mild declines on Tuesday but remained resilient after Monday’s recovery. The greenback held steady amid renewed concerns over potential tariffs from US President Donald Trump.
On Monday, Trump reaffirmed his commitment to imposing 25% tariffs on Canadian and Mexican imports starting March 4, following a one-month delay prompted by border security negotiations. “The tariffs are going forward on time, on schedule,” Trump stated from the White House, reinforcing market fears of trade tensions.
AUD/USD traders eye upcoming US PCE inflation data
Investors are closely watching the upcoming US Personal Consumption Expenditure (PCE) Price Index report for January, scheduled for release on Friday. As the Federal Reserve’s preferred inflation gauge, the PCE data could heavily influence market expectations regarding the Fed’s monetary policy trajectory.
Should US inflation show signs of persistence, speculation around higher interest rates could provide fresh support for the USD, potentially keeping AUD/USD under pressure. Conversely, a weaker inflation reading could bolster the Aussie dollar by reducing demand for the greenback.
Conclusion
With critical economic data on the horizon, AUD/USD traders remain on edge. The pair’s ability to recover from current lows will likely depend on the Australian CPI results and US inflation data, shaping market sentiment in the coming days.
Peter Smith
