US consumer sentiment improved and limited the AUD/USD rally. The latest US inflation report is fueling speculation that the Fed will slow rates. Corrections in Australia China relations are a tailwind against the Australian dollar. The Australian dollar (AUD) hit a fresh six-month high of , against the US dollar (USD) on Friday, consolidating some earlier gains even as US data on Thursday showed inflation continuing to ease. Accordingly, AUD/USD is trading at 0.696 , which is almost flat at the time of writing. Investor sentiment is mixed as US stocks swing between gains and losses. As a result, AUD/USD erased its earlier gains, although a slowdown in US core inflation data suggests that the US Federal Reserve may slow the pace of rate hikes ahead of its February 1st decision. Meanwhile, the American Economic Journal included a survey of consumer sentiment from the University of Michigan that showed an improvement, surpassing estimates of 60.5 to reach 6 .6. Looking at the report, US consumer inflation expectations were mixed, falling in the near term but rising from 2.9 percent to 3 percent over five years. „Inflation in the US is slowing and markets are taking this as a sign that the Fed may pause and that as the economy begins to respond to the tightening of monetary policy, the Fed will lower US interest rates in the second half of the year. ,” NAB- analysts said. Meanwhile, CPI reading is warmer than expected In Australia, speculation about further tightening by the Reserve Bank of Australia (RBA) grew, sending AUD / USD to new multi-month highs. . Money market futures, however, changed with the release of US CPI data and investors expect interest rates to peak around 3.73% from % last week. Another factor behind the AUD was China’s easing of coal import restrictions, which should be positive as Asia’s largest economy reopens. What to watch? Australia: Calendar includes building permits, inflation data, consumer confidence and employment data. United States: Docket publishes Federal Reserve speech, retail sales, producer price index, and housing data.

James Rogers

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