The Australian dollar's fundamental backdrop versus the greenback is decidedly negative, but AUD bears have been burned by selling into weakness in recent months.
The AUD/USD has fallen below 0.6700 twice in the last two months, hitting 0.6682 on July 14 only to rally nearly 7% to the 0.7136 peak on Aug 11.
It touched 0.6699 on Sept 7, before rallying over 3% to 0.6915, ahead of Tuesday's U.S.
The hotter-than-expected CPI undermined the "inflation has peaked" narrative, which was the driving force behind rallies in risk assets and currencies despite hawkish commentary and actions from the Federal Reserve and European Central Bank nL1N30K0ZH.
The market is starting to price in a full percentage-point rate hike by the Fed at next week's meeting nL1N30K10O, with FEDWATCHindicating a 39% probability.
This contrasts with the latest signals from Reserve Bank of Australia Governor Philip Lowe who hinted they may opt for smaller 25 bps hikes in the coming months nL1N30F081.
With the Fed clearly seeking to blunt demand and slow economic growth to below trend, and China's economy still struggling with COVID lockdowns, it is difficult to make a case for sustained rallies in equities, commodities and risk currencies.
The AUD/USD technical outlook is negative after completing a bearish outside day on Tuesday, but the pair is oversold and may bounce in the near term.
Buying AUD/USD put options or selling rallies towards the 10-day moving average at 0.6785 with a stop above the 21-day MA at 0.6845 is the favoured strategy for bears.
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