AUD/USD remains sideways above 0.6500 ahead of US Inflation data

• AUD/USD consolidates above 0.6500 as the focus shifts to US inflation data.
• The Fed is expected to cut interest rates in May.
• The Australian Dollar will dance to the tunes of the Employment data.

The AUD/USD pair trades in a narrow range above the psychological support of 0.6500 in the early New York session. The Aussie asset struggles for a direction as investors await January’s United States Consumer Price Index (CPI) data for fresh guidance.

S&P500 futures display a subdued performance before the opening of US markets. The US Dollar Index (DXY) extends its recovery to 104.20 as investors are cautious ahead of US inflation data, which will be published on Tuesday.

According to the estimates, the headline inflation grew at a slower pace of 3.0% against 3.4% in December. In the same period, core inflation that excludes volatile food and oil prices decelerated slightly to 3.8% from 3.9%. The monthly headline and core inflation rose steadily by 0.2% and 0.3%, respectively.

The continuation of progress in the underlying inflation declining towards the 2% target will increase the odds of a rate cut by the Federal Reserve (Fed). As per the CME Fedwatch, the chances of a rate cut by 25 basis points (bps) in the March monetary policy meeting are small. While for the May meeting, traders see a 53% chance for a rate cut by 25 bps that will push key rates in the range of 5.00-5.25%.

On the Australia Dollar front, investors will focus on the Australian Employment data for January, which will be released on Thursday. Investors anticipate Australian employers hiring 30K workers against 65.1K lay-offs in December. The Unemployment Rate rose to 4% from 3.9% a month ago.