- AUD/USD is trading weaker around 0.6520 on light trading volume.
- Fed officials stressed that further evidence of progress in inflation is needed before cutting rates.
- The RBA's Bullock said the board had not ruled out further increases in the coming months.
- A closely watched event will be January Tuesday's CPI inflation data.
The AUD/USD pair remains on the defensive in Monday's early Asian session. Markets are closed in China for the Lunar New Year holiday. Amid a quiet session in Asia, traders will focus on risk-on sentiment in the new week. Later this week, the US consumer Price index (CPI) for January. At press time, AUD/USD is trading at 0.6520, losing 0.07% on the day.
Revised CPI data rose 0.2% in December from the previous month, compared with the original estimate of 0.3%, the Bureau of Labor Statistics said on Friday. The report said that inflation rose in December 2022 and did not fall as previously thought.
Several Federal Reserve (Fed) officials stressed last week that more evidence of progress in inflation is needed before cutting rates. Tuesday's January CPI data will be the key reading, with an increase of 0.2% month-on-month and 3.0% year-on-year expected. Core CPI excludes volatile food and energy prices and is estimated to show an increase of 0.3% month-on-month and 3.8% year-on-year. Fed Funds futures are pricing in a 107 basis point (bps) or roughly 1% rate cut for 2024, down from 158 bps less than a month ago.
On the Australian front, the Reserve Bank of Australia (RBA) provided more hawkish bias than the market expected. RBA Governor Michele Bullock said Friday that the board did not rule out another rate hike, but did not rule it out either. Additionally, deflation concerns in China are weighing on sentiment, which could push the Australian dollar (AUD) lower. and acts as a headwind for the AUD/USD pair.
The market is likely to trade in light trading volume due to the Lunar New Year holidays. In addition to the release of CPI inflation data on Tuesday, investors will be watching several Fed speakers this week. These events could give a clear direction AUD/USD pair.