• The US Dollar tumbled following the release of inflation data from the US.
• US inflation cooled to 3.2% in October, and core indicators also eased.
• The AUD/USD sharply rose, gaining over 70 pips in just a few minutes.

The AUD/USD surged from 0.6370 to 0.6445 within a few minutes after the release of the below-expectation US Consumer Price Index (CPI) figures for October. The US Dollar Index sharply declined, falling below 104.80, reaching its lowest level since September 20.

US inflation cools, so Fed rate hike expectations

The US CPI remained unchanged in October, defying expectations of a 0.1% increase, following a 0.4% rise in September. The annual inflation rate slightly declined from 3.7% in September to 3.2% in October, falling short of the market consensus of 3.3%. The Core CPI, excluding volatile food and energy prices, rose 0.2% on a monthly basis, below market expectations of 0.3%. The annual core inflation rate stood at 4.1%, slightly lower than the 4.2% recorded in the previous month.

Following the release of the data, the likelihood of a rate hike in December dropped to practically 0% from 14%, according to the CME FedWatch Tool. The swap market now predicts the possibility of the first rate cut again in June, compared to July.

US Treasury yields experienced a significant decline after the report, with yields dropping more than 3%. The 10-year yield fell from 4.62% to 4.50%. Meanwhile, stock markets on Wall Street surged to fresh weekly highs.

The combination of a weaker US Dollar, lower Treasury yields, higher commodity prices, and improved risk appetite boosted the AUD/USD pair, pushing it above 0.6400. The pair remains near its highs, slightly below 0.6450, with bullish momentum intact.

The next resistance level for AUD/USD is at 0.6450. If the pair breaks above that area, attention will turn to 0.6500, the last defense before the key resistance area of 0.6520. This resistance level capped the upside in late August, September, and last week. A break above that level would open the doors to further gains.

Technical levels