AUD Strengthens After Hot CPI Report; Eyes Multi-Month Highs Ahead of US PCE

The Australian dollar attracted buying for a second consecutive day following the release of Australia's July consumer inflation data, climbing to around 0.7170 during Wednesday's Asian session. It now trades at 0.71759, approaching multi-month highs.

**Hot CPI Data Supports AUD Strength**

Australia's July CPI data came in hot, reinforcing market expectations that the Reserve Bank of Australia will maintain its hawkish stance. Market forecasts had projected a 0.9% month-on-month increase, following a -0.1% reading in the prior month; the year-on-year rate was expected at 3.3%, down from 3.8% previously. Westpac analysts noted that holiday-related travel, rising fuel prices, and stronger domestic service costs following minimum wage increases were likely key drivers of the monthly uptick, while lower electricity prices would partially offset the impact. Inflation running above expectations further narrows the scope for near-term RBA easing, providing fundamental support for the Australian dollar.

**US PCE Becomes Next Focus**

Market attention now shifts to the upcoming US core PCE price index. As the Federal Reserve's preferred inflation gauge, the core PCE reading will directly influence market pricing of the Fed's future rate path. Analysts suggest that a CPI/PCE print above expectations would typically reinforce rate hike expectations, thereby supporting the US dollar and pressuring equities; conversely, a below-consensus reading could weaken dollar momentum. With AUD/USD trading near multi-month highs, a soft US PCE result could pave the way for further gains in the Australian dollar.

**Technical Outlook and Risks**

AUD/USD has risen for a second straight session, indicating that short-term buying momentum remains intact. However, volatility could intensify ahead of the key US inflation data release. Market signals show investors remain divided on the Fed's policy trajectory for the remainder of the year, and any inflation reading that surprises to the upside could trigger a sharp dollar rebound, exerting pullback pressure on the Australian dollar.