Australian Dollar declines after local inflation data

• AUD/USD retreats on resurgent demand for safe-haven US Dollar amid lingering global economic concerns.
• Hawkish RBA stance and market expectations of 50 bps Fed rate cut in November support the pair.
• Despite softer Australian CPI data, near-term RBA rate cuts remain unlikely.

The AUD/USD retreated on Wednesday, declining by 0.70% to 0.6850. The pair's decline came as the US Dollar regained its safe-haven appeal amidst persistent global economic concerns. Despite the weaker Australian Consumer Price Index (CPI) data, near-term RBA rate cuts remain unlikely, limiting the AUD/USD's downside potential. The upcoming speech from Federal Reserve (Fed) Chair Jerome Powell on Thursday and the US PCE Price Index on Friday will be closely watched for further cues on the central banks' monetary policy stance.

The Australian economy's outlook is uncertain due to contrasting indicators and the Reserve Bank of Australia's (RBA) aggressive stance on inflation. As a result, markets are anticipating a modest interest rate cut of only 0.25% in 2024, signaling a shift away from previous expectations of more significant easing.

Daily digest market movers: Australian Dollar declines as markets digest soft CPI, USD strength

• Despite positive news about China's new stimulus measures, global economic downturn concerns and geopolitical risks make investors cautious, leading to a weaker open in European equity markets.
• The safe-haven US Dollar rebounds from its lowest point this year, benefiting from risk aversion and driving flows away from the risk-sensitive Australian Dollar.
• The market predicts a 50-basis-point rate cut by the Fed in November, contrasting with the Reserve Bank of Australia's hawkish stance, supporting AUD/USD.
• RBA Governor Michele Bullock indicates that recent data has not significantly affected the policy outlook, reinforcing the hawkish stance and limiting AUD/USD downside.
• Australian CPI data showed a decline to 2.7% YoY in headline inflation to its lowest level since early 2022, offering some relief but insufficient to warrant RBA rate cuts.

AUD/USD technical outlook: AUD/USD take a breather, no sell signal

The AUD/USD saw sharp upward movements which propelled the pair to multi-month highs near 0.6900 in the last sessions. That improved the outlook which remains bullish.

The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) took a big hit on Wednesday, but they shouldn't be considered a sell signal. The buyers seem to be taking a breather after reaching highs since December. A correction was necessary.