How low can AUD/USD go as CPI and risk-off collide?

AUD/USD dips to a five-week low as headwinds intensify

Australian dollar/United States dollar (AUD/USD) closed lower last week at 0.6449, down 0.59%, after retreating from a six-month high of 0.6551 reached earlier in the week.

This decline was driven by three main headwinds that initially impacted AUD/USD gently but with increasing severity as the week progressed.

Impact of Chinese economic data

The first headwind came on Monday, with the release of soft Chinese economic activity data. As highlighted in last week’s AUD/USD update here, China recorded its 23rd consecutive monthly decline in new home prices across 70 major cities. Additionally, industrial production and fixed asset investment came in below expectations.

This weighed on the 'China complex', affecting iron ore, major Australian Securities Exchange (Australia 200) miners, and the Australian dollar (AUD) .

Australian labour market report

The second headwind came from a soft Australian labour market report for May, released on Wednesday. The report showed employment falling by 2500 positions against expectations of a 22,500 increase.

Deterioration in risk sentiment

The final headwind was a deterioration in risk sentiment, which boosted the United States dollar (USD) going into the weekend. This was due to concerns over potential US intervention in the Iran-Israel conflict.

These concerns were realised over the weekend when the US conducted strikes with B-2 Stealth Bombers on three Iranian nuclear sites, claiming to have 'obliterated' Iran’s nuclear capabilities. In response, Iran has vowed to retaliate, warning of 'everlasting consequences'.

AUD/USD weakens further

In response to these events, AUD/USD slipped lower today to trade at 0.6400 (-0.76%), its weakest level in nearly five weeks.

How AUD/USD tracks for the rest of this week will depend on updates from the Middle East, Iran’s response, and the outcome of Wednesday’s Mmonthly consumer price index (CPI) previewed below.

Monthly CPI indicator

Date: Wednesday, 25 June at 11.30am AEST

In April, the monthly CPI indicator rose by 2.4% year-on-year (YoY), unchanged from the previous two months. The annual trimmed mean inflation measure edged up to 2.8% YoY in April from 2.7% prior.

Last month’s release was preceded a week earlier by the Reserve Bank of Australia (RBA) cutting its official Cash interest rate by 25 basis points (bp) to 3.85%. The rate cut was widely expected after the first quarter (Q1) 2025 inflation report showed both trimmed mean and headline inflation falling back within the RBA’s 2% – 3% target range for the first time since the fourth quarter (Q4) 2021.

The preliminary expectation for the monthly CPI indicator for May is for headline inflation to ease to 2.3% in May from 2.4%, with the trimmed mean expected to ease to 2.5% from 2.8%.

The rates market starts this week pricing in an 80% chance of a 25 bp RBA rate cut in July and a cumulative 73 bp of rate cuts between now and year-end.

Australian monthly CPI indicator chart

AUD/USD technical analysis

AUD/USD has spent the past two months trading in a range between approximately 0.6350 and 0.6550, viewed as consolidation following AUD/USD’s rebound from the April 0.5912 low. This was expected to be followed by another leg higher towards 0.6730.

However, some red flags have emerged around this interpretation. Last week, AUD/USD made a marginal new high for the second week in a row before retreating ahead of the weekend. This retreat left behind a bearish 'loss of momentum' candlestick on the weekly chart.

AUD/USD weekly chart

Today’s session has seen downside follow-through, with AUD/USD falling below the 200-day moving average, currently at 0.6427, for the first time since the first trading day of June.

Taken together, the odds are increasing that AUD/USD will test the bottom of the range at approximately 0.6350 - 0.6340. A sustained break below this level would suggest a deeper pullback is underway towards 0.6200 - 0.6150.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 23 June 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}