AUD/USD refreshes daily low, slides below 0.6900 amid softer risk tone ahead of US CPI

• AUD/USD surrenders modest intraday gains and retreats below the 0.6900 mark in the last hour.
• The cautious market mood lends some support to the safe-haven buck and acts as a headwind.
• Bets for an additional RBA rate hike in February should limit losses ahead of the key US CPI.

The AUD/USD pair struggles to capitalize on its modest intraday gains and fails near the 0.6925-0.6930 supply zone for the third straight day on Thursday. Spot prices retreat below the 0.6900 mark during the early part of the European session and refresh the daily low in the last hour, though the downside seems limited.

The Australian Dollar might draw support from rising bets for an additional interest rate hike by the Reserve Bank of Australia (RBA) in February, bolstered by Wednesday's hotter domestic inflation data. In fact, the Australian Bureau of Statistics reported that the headline Consumer Price Index (CPI) re-accelerated to the 7.3% YoY rate - a 32-year-high - in November from the 6.9% in the previous month. Apart from this, subdued US Dollar price action could act as a tailwind for the AUD/USD pair, at least for the time being.

The USD Index, which measures the Greenback's performance against a basket of currencies, languishes near a multi-month low amid diminishing odds for a more aggressive tightening by the Fed. A slowdown in the US wage growth was seen as the initial sign of easing inflationary pressures, which could allow the US central bank to soften its hawkish stance. This leads to a further decline in the US Treasury bond yields and weighs on the buck. That said, the cautious mood helps limit any further losses for the safe-haven USD.

The anxiety ahead of Thursday's release of the latest US consumer inflation figures tempers investors' appetite for perceived riskier assets. This is evident from a softer tone around the equity markets, which is seen benefitting the Greenback's relative safe-haven status and capping the upside for the risk-sensitive Aussie. Hence, the focus remains on the crucial US CPI report, due later during the early North American session.

From a technical perspective the pair appears to have renewed the longer term uptrend established since the October 2022 lows. The break above the December 13 highs at 0.6893 means it has made a higher high, continuing peak and trough progression upwards, thus consolidating the uptrend. AUD/USD now appears to be forming a bull pennant continuation pattern, which can best be seen on the 4-hour chart, as liquidity falls and traders take a step back prior to the US CPI release. If the bull pennant activates and the Aussie goes higher, the final target - calculated as a 0.618 Fibonacci ratio of the flag pole - stands at the key psychological 0.7005 level, possibly even 0.7093, if markets really go bezerk, such as might happen following a lower-than-expected inflation print later today. 

Technical levels to watch