The AUD/USD pair falls significantly to near the round-level support of 0.6300 in the North American session on Wednesday. The Aussie pair is down almost 0.6% as the US Dollar (USD) recovers further as the Republicans-controlled-United States (US) House of Representatives passed President Donald Trump’s tax cut bill on Tuesday.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, extends its recovery to near 106.60. The USD Index rebounds in the Asian session after discovering buying interest near the 11-week low of around 106.10.

Investors expect President Trump’s $4.5 trillion tax cut bill to be pro-growth and inflationary for the economy. This scenario would force Federal Reserve (Fed) officials to maintain a restrictive monetary policy stance for longer.

To get cues about the current status of inflation, investors will focus on the US Personal Consumption Expenditure Price Index (PCE) data for January, which will be released on Friday. The underlying inflation data, which is the Fed’s preferred inflation gauge, is expected to influence market speculation about the Fed’s monetary policy outlook. According to the CME FedWatch tool, the Fed is expected to keep interest rates steady in the range of 4.25%-4.50%.

Meanwhile, the Australian Dollar (AUD) underperforms its peers on softer-than-expected growth in the Australian Monthly Consumer Price Index (CPI) data for January. Australian CPI rose by 2.5% year-on-year, slower than estimates of 2.6% but at a steady pace seen in December.

Last week, the Reserve Bank of Australia (RBA) stated that the battle against inflation is far from over after reducing interest rates by 25 basis points (bps) to 4.1%.

Going forward, Trump’s tariff fears would keep the Aussie Dollar on its toes. Till now, Trump has imposed 10% tariffs on imports from China and has threatened a 100% levy on BRICS if they attempt to replace the US Dollar.

More By This Author: