The Australian dollar has posted sharp losses on Thursday. In the North American session, AUD/USD is trading at 0.6655, down 0.68%.

US inflation report sends greenback higher

US inflation was higher than expected in December with a gain of 3.4%. This followed the 3.1% gain in November and was higher than the market estimate of 3.2%. The upswing was driven by energy and food prices, which fell at a slower pace in December than in November. On a monthly basis, CPI rose to 0.3%, up from 0.1% in November and above the market estimate of 0.2%.

Core CPI, which is considered a more reliable gauge of inflation trends, dipped to 3.9% in December. This was lower than the 4.0% gain in November and the market estimate of 3.9%. Core CPI was unchanged at 0.3% and matched the market estimate.

The rise in inflation has boosted the US dollar against the major currencies, as speculation has risen that the Fed might delay plans to lower interest rates. The Fed hasn’t provided a timeline for an initial rate cut, a source of frustration for investors. The markets have been forced to lower the odds of a March cut to around 70% due to today’s inflation report and last week’s nonfarm payrolls release, which was also stronger than expected.

The strong inflation report shows that the battle to reduce inflation to the 2% target will be tough, as the last mile could prove to be the most difficult. Housing and services prices have remained high despite the Fed’s rate hikes. Still, inflation remains relatively low and with the labour market showing resilience despite high rates, there is a strong chance that the Fed will be able to guide the economy to a soft landing.

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AUD/USD Technical

• There is resistance at 0.6732 and 0.6824
• 0.6625 and 0.6533 are providing support

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