Australian Dollar trades mixed in countdown to the Aussie CPI, Fed policy

The Australian Dollar (AUD) demonstrated a mixed performance against its major currency peers, trading marginally lower against the US Dollar (USD) around 0.7180 during the European trading session on Tuesday.

The antipodean will likely face high volatility as the Australian Q1 Consumer Price Index (CPI) data is scheduled to be published on Wednesday. Investors will pay close attention to the Australian inflation data to get fresh cues on the Reserve Bank of Australia’s (RBA) monetary policy outlook. In the March policy meeting, the RBA raised its Official Cash Rate (OCR) by 25 basis points (bps) to 4.1% and stated that inflationary pressures were already high before the onset of the Middle East war, which resulted in a sharp increase in oil prices.

The Australian Bureau of Statistics is expected to show that price pressures grew strongly by 1.4% against 0.6% in the last quarter of the previous year. On an annualized basis, the Australian CPI rose at a faster pace of 4.1% against the previous reading of 3.6%.

Signs of further acceleration in inflationary pressures would boost the speculation of more interest rate hikes by the RBA this year.

According to a Reuters report, currently there is an 82% chance that the RBA will hike interest rates again in its monetary policy meeting in May.

Meanwhile, the US Dollar Index (DXY) trades close to its Monday closing price around 98.50. The US Dollar faced a sharp selling pressure on Monday after strong opening gains, as Iran’s readiness to end the war with the United States (US) diminished its safe-haven demand.

On the domestic front, investors await the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.