AUD/USD: Australian dollar bounces back after strong inflation data

The AUD/USD price tilted higher on Tuesday morning after the latest Australian consumer inflation data. The pair is trading at 0.7146, which is slightly above Monday’s low of 0.7090 ahead of the upcoming consumer confidence data.

Australia inflation picks steam

The latest data by the Australian Bureau of Statistics showed that consumer inflation jumped in the third quarter of 2021. 

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The headline CPI jumped to about 3.5% in the year to December 31st, which was higher than the median estimate of 3.1%. Core inflation, which excludes the volatile food and energy prices, rose by 2.6%, which was higher than the Reserve Bank of Australia (RBA) target of 2.0%.

Worse, the so-called non-discretionary inflation rose by 4.5% in 2021. This is an important measure that includes things like health costs and food. 

The main drivers for the latest inflation numbers were the ongoing energy prices in Australia and around the world. Also, the supply chain challenges continued to drive inflation in the country as shortages remained.

Therefore, the AUD/USD pair rose because analysts are now pricing in a change of tone from the Reserve Bank of Australia (RBA) officials. These officials are now expected to provide hints of higher interest rates in the third or fourth quarter of the year.

US consumer confidence ahead

The next key catalyst for the AUD/USD price will be the latest US consumer confidence data from the United States. The data is expected to show that confidence retreated from 115 in December to about 111 in January as worries of inflation remained.

The lower inflation rate will mostly be because of the rising inflation and worries about the Omicron variant.

Meanwhile, the AUD/USD pair will also react to the latest Federal Reserve decision that will come out on Wednesday. Analysts expect that the bank will leave interest rates unchanged and lower its quantitative easing purchases for the third straight month.