Australian Dollar reacts little to soft CPI report; AUD/USD consolidates around 0.7000

AUD/USD remains confined in a narrow trading band during the Asian session on Wednesday.
Hawkish RBA expectations counter soft Australian CPI print and act as a tailwind for the Aussie.
Hopes for a de-escalation of tensions in the Middle East weigh on the USD and support the pair.

Haresh Menghani FXStreet

The AUD/USD pair continues with its struggle to gain any meaningful traction and extends sideways consolidative price moves during the Asian session on Wednesday. Spot prices move little following the release of the latest consumer inflation figure from Australia and currently trade around the 0.7000 psychological mark, nearly unchanged for the day.

The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) climbed by 3.7% year-over-year (YoY) in February, compared to a 3.8% increase reported in the previous month and consensus estimates. Additional details showed that the Trimmed Mean CPI rose 0.2% and 3.3% on a monthly and annual basis, respectively, during the reported month, while the monthly CPI came in flat, in line with market expectations.

The soft data, however, does little to prompt any selling around the AUD/USD pair as the Australian Dollar (AUD) continues to draw support from the Reserve Bank of Australia's (RBA) hawkish stance. Last week, the RBA noted that there is a material risk that uncertainties in the Middle East could add to domestic inflation and keep it above the target for longer. Moreover, almost two more RBA rate increases by the year-end are fully priced in.

This, along with a modest US Dollar (USD) downtick, acts as a tailwind for the AUD/USD pair. The global risk sentiment gets a strong boost amid reports that diplomatic efforts are underway to establish a one-month ceasefire mechanism between the US and Iran. The development helps ease inflationary concerns, triggering a pullback in US Treasury bond yields. This, in turn, undermines the USD's global reserve currency status and offers support to the currency pair.

Economic Indicator

Consumer Price Index (YoY)

The Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a comprehensive basket of goods and services acquired by household consumers. The indicator is the primary measure of headline inflation after a new methodology was applied to transition from quarterly to monthly readings, applying to data from April 2024 onwards. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

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