AUD/USD sticks to post-US CPI gains to its highest level since June 16, above mid-0.7000s

The AUD/USD pair rallies to its highest level since June 16 in reaction to softer US consumer inflation figures and now seems to have stabilized around the 0.7055-0.7060 region.

The US dollar witnesses a broad-based selloff and plunges to a five-week low during the early North American session, which, in turn, provides a strong lift to the AUD/USD pair. The intraday USD slump follows the release of the US CPI report, which points to easing inflationary pressures. The markets react quickly and push back expectations for a more aggressive policy tightening by the Fed.

In fact, the odds for a 75 bps Fed rate hike in September tumble to 35% from 80% pre-CPI and trigger a steep decline in the US Treasury bond yields, which, in turn, weigh heavily on the USD. Apart from this, a fresh wave of the global risk-on rally - as depicted by bullish sentiment around the equity markets - further undermines the safe-haven buck and benefits the risk-sensitive aussie.

This, along with technical buying above the 0.7000 psychological mark, further contributed to the strong bid tone surrounding the AUD/USD pair. A subsequent move beyond the previous monthly swing high, around the 0.7045 region, might have already set the stage for additional gains. That said, overbought RSI on hourly charts is holding back bulls from placing fresh bets, at least for now.

Nevertheless, the AUD/USD pair now seems poised to prolong the upward trajectory and aims to reclaim the 0.7100 round-figure mark. Some follow-through buying beyond the said handle should pave the way for a move towards challenging the very important 200-day SMA, currently around mid-0.7100s. The latter could keep a lid on any further gains for spot prices and act as a pivotal point for traders.

Technical levels to watch