AUD/USD bears move in and push bulls back further to test commitments below 0.7090

At 0.7088, AUD/USD is printing a fresh low within the daily bearish impulse and extending the overnight losses from when supply hit the market in a risk-off environment. Wall Street's and European bourses were a sea of red on Thursday following the European Central Bank meeting and ahead of Friday's important US and Chinese inflation data. 

Markets were risk-off around the European Central Bank event and announcements that signalled it would hike interest rates next month for the first time since 2011. Consequently, eurozone borrowing costs hit an eight-year high when the ECB said inflation would remain "undesirably elevated" for some time. However, the ECB's steps to tackle inflation are not as hawkish as its counterparts at the Federal Reserve nor the Reserve Bank of Australia which earlier this week hiked more than expected. 

US stocks fell deep into negative territory at market close on Thursday. The Dow Jones Industrial Average fell 1.9% to 32,272.79, the S&P 500 was down 2.4% to 4,017.82 and the Nasdaq Composite was 2.8% lower at 11,754.23. Additionally, the US Treasury's 30-year auction hit a high yield of 3.185% on Thursday, up from the 2.997% high in the previous auction and the US 10-year yield climbed to a fresh high of 3.07% intraday. The DXY index that measures the US dollar vs. a basket of currencies has rallied from a low of 102.152 to score a high of 103.367 for where it currently trades in Tokyo. 

US CPI in focus

Investors will get a look at the latest reading on U.S. inflation on Friday in the form of the May Consumer Price Index (CPI). The consensus forecast calls for a year-over-year inflation increase of 8.3%, unchanged from April. While some investors have been hopeful that inflation may have peaked, a recent run higher in oil prices to a 13-week high has dented that optimism, boosting the appeal of the safe-haven US dollar. US inventories continue to fall as demand rises early in the driving season.

However, we could see more USD resilience in the very short-term ''especially if US core CPI surprises to the upside,'' analysts at TD Securities argued. 

''Tactically, we see growing signs of an adverse risk backdrop in the coming weeks, as US real rates and equity correlations wane further and the USD peels away from relative US equity performance.''

A stronger CPI ''reading could put downward pressure on risky assets as investors look for the Fed to remain aggressive in its fight against inflation.''

The Fed is scheduled to announce its next policy statement on Wednesday. A rate hike of at least 50 basis points from the central bank is already being priced in, according to CME's FedWatch Tool.