AUD/USD edges lower as markets await US NFP and China CPI

• AUD/USD edges lower as weak Australian consumer sentiment weighs on the Aussie.
• Expectations of Fed rate cuts keep the US Dollar on the back foot.
• Traders await US NFP, CPI and China inflation data for fresh direction.

AUD/USD ticks lower on Tuesday, pausing a two-day winning run as weak domestic consumer sentiment data weighs on the Australian Dollar (AUD). The pair, however, struggles to attract fresh sellers with a broadly softer US Dollar limiting downside pressure.

At the time of writing, AUD/USD trades near 0.7070, holding close to its three-year high. Meanwhile, the US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies, is trading flat near a more than one-week low around 96.80.

Australia’s Westpac Consumer Confidence fell by 2.6% in February, marking a third straight monthly decline after a 1.7% drop in January.

Matthew Hassan, Head of Australian Macro-Forecasting at Westpac, said that “previous surveys showed a significant weakening in sentiment as a lift in inflation stoked fears that the Reserve Bank of Australia (RBA) was about to raise interest rates.”

Earlier this month, the RBA raised interest rates by 25 basis points to 3.85% from 3.60% in response to ongoing inflation pressure. Hassan added that “consumers are bracing for more rate rises to come,” and added that while a follow-up hike at the next policy meeting on March 16-17 cannot be ruled out, “we think a more likely outcome is that the Board waits for more data, quarterly inflation updates in particular, before making its next move.”

In the United States (US), softer Retail Sales data reinforced expectations that the Federal Reserve System will remain on its easing path, with markets currently pricing around 50 basis points (bps) of rate cuts this year.

Traders now look to Wednesday’s Nonfarm Payrolls (NFP) and Friday’s Consumer Price Index (CPI) report for clearer guidance on the timing of the first rate cut.

Attention also turns to China’s CPI data due on Wednesday, a key risk event for the Australian Dollar given Australia’s heavy trade exposure to China.