AUD/USD falls to near 0.6350 after hot key US inflation data

• AUD/USD slipped perpendicular to 0.6350 as headline inflation remained higher on rising petrol prices.

• Monthly headline consumer inflation rose 0.4% while investors had forecast a growth rate of 0.3%.

• Consumer inflation expectations one year ahead in Australia are seen rising to 4.8%, compared with the previous release of 4.6%.

The AUD/USD pair experienced a significant drop below the key support level of 0.6400, taking a steep downward trajectory. This decline was triggered by the release of the United States inflation report for September, which indicated a higher-than-anticipated increase in the headline Consumer Price Index (CPI), primarily due to elevated gasoline prices.

The S&P500 turned volatile after hot headline inflation data while the core CPI weakened as expected. Monthly headline consumer inflation rose 0.4% while investors had forecast a growth rate of 0.3%. In August, economic data grew 0.6%.

Meanwhile, consumer prices rose at a forecasted 0.3% pace. Annual core CPI slowed to 4.1% as expected. Last month, economic data was at 4.3%. A consistent decline in core inflation and increasing tensions in the Middle East are predicted to allow the Federal Reserve (The Fed) to keep interest rates unchanged in the range of 5.25-5.50%.

The US Dollar Index (DXY) surged near 106.30 on expectations that progress towards price stability will slow. US 10-year Treasury bond yield recovers losses and jumps to 4.62%. Meanwhile, Fed policymakers support keeping interest rates unchanged because rising US Government bond yields will reduce future spending and investment.

Additionally, weekly jobless claims were nearly unchanged last week. Individuals claiming unemployment benefits for the week ending October 6 remained steady at 209K, slightly lower than expectations of 210K.

On the Australian Dollar side, investors await consumer inflation expectations one year ahead which will be published on Friday. According to expectations, economic data is forecast to rise to 4.8%, compared to the previous release of 4.6%. Such an outcome could force Reserve Bank of Australia (RBA) policymakers to raise interest rates by another 25 basis points (bp) to 4.35% by the end of the year.