AUD/USD hits 3-week low as the yield differential narrows on weak Aussie CPI data

• Australia Q3 CPI at 0.6 percent vs. 0.8 percent expected
• 10Y AU-US bond yield differential drops in the AUD-negative manner, Aussie weakens
• Weak inflation data likely to push back RBA tightening expectations further

AUD/USD dropped to a three-week low of 0.7739 as the 10Y Aussie-US yield spread narrowed to 37 basis points after Australia reported a weaker-than-expected third quarter inflation figure.

The third quarter inflation as represented by the consumer price index (CPI) came-in at 0.6% q/q vs. 0.8% expected. The annualised figure dropped from 1.9% to 1.8%. Meanwhile, the RBA trimmed mean CPI cooled to 0.4% q/q from 0.5%.

The offered tone around the AUD strengthened on the back of weak inflation number. Bond markets are pricing-in a delay in the RBA tightening. The 10-year Aussie-US yield spread fell to 37 basis points from the pre-data level of 40.6 basis points.

Given the weak inflation number, the AUD is likely to remain on the back foot in Europe. The 200-DMA support of 0.7692 could be breached in a convincing manner if the US durable goods orders beat expectations.

AUD/USD Technical Levels

Jim Langlands from FX Charts writes, "under Oct low of 0.7732, targets will be 0.7725 and 0.7700.On the topside, resistance will be seen at 0.7800 and again at 0.7820, above which could squeeze towards the 23 October high at 0.7833 although this looks rather doubtful."