AUD/USD drifts lower from the 0.6700 mark as the market prepares for US CPI

• AUD/USD looks cautious prior to the US CPI release, as the downside bias is intact.
• Fed is in a tricky situation, what next for a rate hiking plan?
• Market forecasters are abating for a massive rate hike from the Fed.   

AUD/USD is treading water in the early Asian session after hitting the 0.6700 mark in the last trading session. US Dollar Index (DXY) is on the softer side in early Asian hours, as the market awaits the United States (US) Consumer Price Index (CPI) data release on Tuesday.

AUD/USD has not capitalized much on the previous trading day in wake of the backstop provided by the Federal Reserve (Fed) and US Treasury. On Silicon Valley Bank’s (SVB) fallout and to cement any dent over the US banking system, the Fed came up with a backstop plan on Sunday, which prompted milder risk on the market environment during New York (NY) session on Monday.

Looking ahead, the market is heading into US CPI data with caution due to the numerous dynamic changes that occurred on Monday after the SVB fallout event. Many key market forecasters are rolling back their 50 basis points (bps) Fed rate hike expectation for 22 March.

Given the fact that higher borrowing cost across the globe is putting pressure on high-leverage business like tech companies, which are struggling to keep on with repayments on their debt amidst higher interest rate, therefore the banking system is facing a big problem with their non-performing assets.

Moreover, a continuously rising interest rate will likely hammer the banking system as per the aforementioned analogy. Hence the market is expecting no overstretching on the rate fronts.

However, elevated inflation levels are putting central banks into a tricky situation and acting like a double whammy for central banks.

The upcoming US CPI will be interesting to watch as it’s only going to add more complexity for the Federal Reserve. 

Levels to watch.