**Australian Dollar (AUD/USD) Outlook: CPI Test Ahead Amid Persistent US Dollar Strength**
Adapted and expanded from an article by David Cottle, Forex.com
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### Introduction
The Australian dollar’s recent trajectory against the US dollar has been shaped by a complex blend of local economic data, global risk sentiment, and international central bank policy outlooks. Currently, AUD/USD is hovering near multi-month lows, with the strength of the US dollar and anticipation around key economic releases—particularly Australian inflation data—setting the tone for near-term moves. This article will delve deeply into the current AUD/USD landscape, what’s influencing its direction, and key events traders should watch.
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### Recent Performance of AUD/USD
AUD/USD has remained on the back foot in recent trading sessions. Weakness in the pair is attributed to:
– Broad-based strength in the US dollar, fueled by tighter US monetary policy expectations and positive data.
– Softer risk appetite in global markets, which undermines the Australian dollar due to its status as a “risk” currency tied to resource exports and Asian economic momentum.
– Nervousness ahead of upcoming Australian economic data releases, especially the quarterly Consumer Price Index (CPI), which may heavily influence Reserve Bank of Australia (RBA) policy expectations.
AUD/USD has slipped below the psychologically significant 0.6600 level, with prices probing support regions last seen in late 2023.
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### The US Dollar’s Prevailing Strength
Several factors are reinforcing the dominance of the US dollar:
– **Federal Reserve Policy:** Expectations that the US Federal Reserve will hold interest rates higher for longer are propping up the dollar. Despite some softening in economic growth indicators, the persistence of sticky US inflation has forced market participants to pare back rate cut bets for 2024.
– **US Economic Data:** Surprise resilience in US labor markets and continued robustness in consumer spending have validated the Fed’s cautious stance.
– **Safe-Haven Demand:** Geopolitical tensions and uncertainty over the Chinese economic recovery have increased safe-haven flows into the USD and US Treasuries.
The US Dollar Index (DXY), which tracks the greenback against a basket of major currencies, has consistently tested 104-106 levels. This trend has exerted downward pressure not only on the AUD but on a wide array of developed and emerging market currencies.
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### Key Risk Event: Australian CPI Release
The next major test for AUD/USD is Australia’s Q1 Consumer Price Index reading, which the RBA closely monitors as it seeks to balance inflation control with supporting economic growth.
#### What Markets Expect
– Economists are forecasting a modest cooling in inflation, with quarterly price gains expected to slow.
– Core measures of inflation will be scrutinized—persistent upside surprises could bolster RBA hawkishness, while any downside miss might reinforce market bets that the RBA is done hiking rates, or may even cut later in the year.
#### Why It Matters
– Inflation outcomes directly feed into
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