Economists are predicting that the US annual inflation rate will hold steady at 3.4% in May. Additionally, there is an expectation for the core inflation rate to slightly decrease from 3.6% to 3.5%. These numbers play a significant role in shaping investor expectations and could have implications on the Federal Reserve’s interest rate decisions.
Should the inflation rate come in higher than expected, it may lead to a reduction in investor expectations of a Fed rate cut in September. This potentially more hawkish stance from the Fed could result in an increase in borrowing costs and a decrease in disposable income for consumers. The downward trend in disposable income could impact consumer spending, consequently dampening demand-driven inflation.
The US dollar is expected to exhibit a heightened sensitivity to the Consumer Price Index (CPI) Report. As the day progresses, the focus will shift towards the Federal Open Market Committee (FOMC) interest rate decision, economic projections, and the subsequent press conference. A more hawkish tone from the FOMC and optimistic economic projections could fuel a breakout in the US dollar, especially if market expectations for multiple Fed rate cuts in 2024 decrease.
In the near term, the trajectory of the AUD/USD pair will heavily hinge on the US inflation figures and the economic projections released by the FOMC. Higher-than-expected inflation rates coupled with a hawkish outlook on the US economy could tip the scale in favor of the US dollar. Currently, the AUD/USD pair is trading above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling bullish momentum. A breach of the $0.67003 resistance level might pave the way for a move towards $0.67500.
Traders closely monitoring the AUD/USD pair should keep a keen eye on inflation reports from China, the US CPI Report, and the economic projections from the FOMC. Conversely, should the AUD/USD pair break below the 50-day EMA, it could open the door to further downside towards the $0.65760 support level. With the 14-period Daily Relative Strength Index (RSI) currently at 48.35, there is a possibility of the AUD sliding below the $0.65500 mark and entering oversold territory.
The US inflation rate forecast holds significant implications for currency markets, particularly the AUD/USD pair. Traders should remain vigilant and adapt their strategies in response to changing economic data and central bank policies.