AUD/USD corrects to near two-month low around 0.6500 ahead of US/China CPI data

• AUD/USD cracks swiftly to near a two-month low around 0.6500 amid strength in the US Dollar and China’s bleak economic growth.
• US annualized headline inflation is expected to bounce back to 3.3% vs. the former release of 3.0%.
• The Chinese economy struggles to push inflation higher due to weak domestic demand and vulnerable exports.

The AUD/USD pair witnesses a sharp correction amid strength in the US Dollar Index (DXY) and a weakness in China’s business with other nations. The Aussie asset cracks to near a two-month low around 0.6500 and is expected to continue its downside momentum amid caution ahead of a busy economic calendar.

S&P500 futures extend losses in the European session, portraying a buildup of caution among market participants ahead of the United States Consumer Price Index (CPI) data, which will be published on Thursday. The US Dollar Index climbs above the 102.40 resistance as investors hope for stubbornness in CPI’s July reading due to a recovery in global oil prices.

Oil price recovery would elevate gasoline prices and the contribution of cheap oil to consistently softening headline price pressures would start fading. As per the estimates, annualized headline inflation is expected to bounce back to 3.3% vs. the former release of 3.0%. This would ease hopes of no more interest rate hikes from the Federal Reserve (Fed) by the year-end.

But before that, investors will focus on China’s inflation data, which will be released on Wednesday at 01:30 GMT. Monthly CPI is expected to deliver a stagnant performance against a deflation of 0.2%. On an annual basis, inflation is expected to report a deflation by 0.5% against a neutral figure. Producer Price Index (PPI) would continue to remain in the deflation territory, however, the pace of would ease to -4% against the former release of -5.4%.

The Chinese economy struggles to push inflation higher despite monetary and fiscal stimulus due to weak domestic demand and vulnerable exports. It is worth noting that Australia is the leading trading partner of China and weak economic prospects in China impact the Australian Dollar.