AUD/USD consolidating near lows with gold also in focus.

Progress on the debt ceiling deal has not had a major impact on FX markets very recently. Instead, US yields have moved to new highs as markets focus on sticky inflation. There is now above a 60% chance of a 25bp June Fed rate hike. That 14 June meeting is likely to see inflation forecasts lifted and may sustain the bid in the greenback, especially on the back of another solid NFP report.

AUD/USD broke down last week through the year-to-date lows around 0.6563/73 after sideways trading for a few months. Prices have been consolidating over the last few days below a Fib level (61.8%) from the October rally at 0.6547. Buyers have tried to push above here and back into the long-held range over the last couple of sessions but failed. A break below Friday’s low at 0.6490 sees 0.6386 as the next major support.

"Also on our radar today"

Aussie inflation and China PMIs released overnight

As markets digest the debt ceiling news, we get important Asian data out later tonight. The monthly CPI for Australia is expected to tick higher to 6.4% from 6.3% previously when food prices saw notable gains. A weaker-than-expected print could confirm the bias from the RBA to pause at the next policy meeting on June 6. This would mean AUDUSD could also extend its down move further below 0.65 handle. Last week’s low was 0.6490. However, if the print is firmer-than-expected, it will complicate the task of the RBA.

Chinese PMIs will also direct AUD price action. April saw an unexpected contraction in manufacturing for the first time this year. But this is set to return to expansion this time. However, the softness could put pressure on wages and slow retail sales, while hurting AUD and EUR too. This could prompt China government stimulus measures to bolster both sectors going forward.

Gold has broken down to $1934 this morning. The dollar is bid and US rates/yields remain near their recent highs. The 100-day SMA is at $1936. The halfway point of the March rally is $1935. The next Fib level of support is $1904

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