**AUD/USD Eyes 0.64 as CPI Looms: RBA and Fed Policy in Focus**
*Adapted and expanded from an article by Rich Dvorak, originally published on Forex Factory. Additional context and analysis provided.*
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## Introduction: AUD/USD Navigates Volatile Waters Amid Key Economic Events
The Australian Dollar (AUD), particularly against the US Dollar (USD), is approaching a crucial juncture. The AUD/USD pair is trading just above the 0.6400 mark, with upcoming economic data and shifting central bank dynamics likely to dictate near-term direction. Traders and investors are keeping a close eye on Australia’s upcoming Consumer Price Index (CPI) release, as well as broader macroeconomic moves, particularly from the Reserve Bank of Australia (RBA) and the US Federal Reserve (Fed).
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## Factors Influencing AUD/USD
The currency pair’s movements are driven by a confluence of global themes and domestic events. The most significant factors currently at play include:
– The anticipated release of Australia’s monthly CPI data for May and implications for inflation momentum.
– The RBA’s policy path and how it matches expectations versus other major central banks, especially the Fed.
– Ongoing developments in the US dollar, including Fed signals regarding potential interest rate cuts.
– Broader risk appetite and China’s economic recovery trajectory, given Australia’s heavy trade reliance on China.
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## CPI Data: How Important Is the Upcoming Print?
Australia will publish its May inflation report shortly, with markets especially sensitive to surprises in headline and core inflation readings. As Australia has adopted a monthly CPI gauge, this print offers a more timely snapshot of inflation trends compared to traditional quarterly releases.
### Consensus Expectations
– Headline CPI (May): Expected at 3.8 percent year-on-year, down from the previous 3.6 percent.
– Trimmed Mean CPI: Forecast about 4.0 percent, a slight moderation anticipated.
Since the RBA has clarified its focus is on persistent, domestically-driven inflation, any upward surprise could reignite market expectations for further policy tightening this year.
### Why It Matters
– A stronger-than-expected CPI could pressure the RBA to retain a more hawkish stance, strengthening AUD.
– A downside miss may reinforce the RBA’s recent patience, possibly weighing on the Australian currency.
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## RBA Policy Outlook: Hawkish Repricing on the Cards?
At the June policy meeting, the RBA kept rates on hold at 4.35 percent, reiterating concerns about sticky services inflation and warning that policy might need to remain tight for a while. Some critical points from recent RBA communications include:
– The Board does not rule out raising rates again if inflation proves more persistent.
– Governor Michele Bullock has emphasized “doing what is necessary” to bring inflation back on target.
– While the Bank does not view current policy as outright restrictive, there is a bias toward caution unless incoming data overruns expectations.
### Market Pricing
– Market implied
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