• Annual US inflation rate drops to the lowest since January.
• US Dollar plummets on expectations of a less aggressive Fed.
• AUDUSD heads for the highest daily close since September 22.

The AUDUSD jumped following the release of inflation numbers in the US that came in below expectations. Speculation above smaller rate hikes from the Federal Reserve sank the dollar. The pair hit at 0.6564, the highest level since late September.

Before and after CPI

The US Consumer Price Index (CPI) rose 0.4% in October below the 0.6% of market consensus. The annual reading dropped to 7.7%, the lowest level since January. The numbers sent Wall Street and Treasuries sharply higher. “Evidence is accumulating that inflation has peaked and is now falling again. The Fed's next rate hike is therefore likely to be smaller”, said analysts at Commerzbank.

The expectations of a less aggressive Fed pushed the dollar sharply to the downside and it continues to look vulnerable. The AUDUSD is back above the 0.6520/40 area, which is an important technical zone. While above, more gains seem likely.

Earlier on Wednesday, AUDUSD fell to 0.6390, matching the 20-day Simple Moving Average that is now heading clearly north suggesting that a bottom has been stabilized, at least in the short term. A potential target of the current rally could be seen at 0.6700/10. Before that level resistance levels are located at 0.6615 and 0.6665.

USD daily chart