The AUD/USD is down over 2% from Monday's 0.7891 high and further losses can be expected if recent market turmoil persists.
Inflation fears intensified after much hotter than expected U.S. CPI on Wednesday nL1N2MZ15U and the market is ignoring the old adage "don't fight the Fed".
The Federal Reserve has insisted near-term inflation pressures caused by supply bottle-necks and post-lockdown demand are transitory and they are not yet ready to discuss tapering extremely accommodative policy. nL1N2MZ19K
Since Friday's payroll release, bond market pricing suggests rising inflation may not be transitory and the Fed's complacency will only increase the risk they will be forced to slam on the brakes in the future.
The CPI resulted in Wall Street coming around to sharing those concerns. nL1N2MZ2JM
The Volatility Index (.VIX) soared above 28 on Wednesday, the highest since March 8 and now 70% higher than Friday's close.
There is a good chance volatility will remain elevated in the short-term, as it could take months of data to determine if the Fed is correct in allowing the economy to run hot or dangerously behind the inflation curve.
The AUD/USD is normally an underperformer in times of high market volatility and a break below 0.7710/20 where the 55-day and 100-day moving averages converge could be the start of a move towards the April 1 low at 0.7532.
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