Title: AUD/USD rebounds from 0.6920 after inflation-led weakness, spotlight is on Fed

July 27, 2022 01:56 AM ET

By: AnalysisWatch

The AUD/USD pair has received offers at around 0.6920 after crashing from near 0.6960 in Asian trading.

The asset is regaining strength as investors digest the volatility created after the release of Australian inflation data.

The Australian Bureau of Statistics reported an overall inflation rate of 6.1%, slightly lower than estimates of 6.2% but still extremely higher than the previously released rate of 5.1%. The adjusted consumer price index also rose to 4.9%, exceeding expectations and the previous published rates of 4.7% and 3.7%, respectively.

With the CY2022 second quarter inflation rate almost meeting expectations, the chances of another 50 basis point rate hike by the Reserve Bank of Australia (RBA) have increased. Price pressures have increased significantly during this period, and the RBA must announce further rate hikes without hesitation.

Meanwhile, the U.S. dollar index (DXY) has broken through the inventory distribution that had formed in a narrow range of 107.00-107.10. A decline in the DXY indicates that market participants have already discounted the Federal Reserve's (Fed) rate hike expectations. The market consensus is that the Fed will raise rates by 75 basis points as the increasing likelihood of a slowdown in the U.S. economy will force Fed Chairman Jerome Powell to back down from the announcement of a 1% rate hike.