US dollar dips as inflation fears ebb. AUD/USD continues to recover

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US dollar on the decline

Fears of an early Fed taper or rate hike faded after inflation data matched economist estimates in May. Core PCE rose 3.4%, as expected.

The recent trend in inflation numbers has been to exceed the consensus, particularly in the recent 5.0% CPI reading.

Markets were braced for more of the same but when that didn’t happen the dollar slid across the board. The commodity currencies took particular advantage and AUD/USD took particular advantage, rising to the highs of the week and further above the 200-day moving average and the March 31 low. A week ago, this pair looked like it could be headed for an ugly breakdown but it has quickly recovered.

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