AUD/USD has strongly defended the downtrend after spotting decent buying interest around 0.6240. The asset has extended gains to around 0.6280 as risk-on momentum has built. Investors are shaking off the Federal Reserve’s (Fed) aggressive pessimism and supporting currencies seen as risky. US Dollar Index (DXY) is expected to retest Tokyo’s knee near 113.00 as investors exit safe haven after failing to break fresh weekly high of 113.60 to hold. The highlight of this week is the US Consumer Price Index (CPI) data, which will be released on Thursday. Factoring in market expectations, US headline inflation is expected to fall to 8.1%. While core CPI, which excludes oil and food prices, may rise to 6.5%.

It’s worth noting that September payrolls data were upbeat. US Non-Farm Payrolls (NFP) was released at 263k, above expectations of 250k Also, the unemployment rate has been reduced to 3.5%. Should inflation continue to accelerate, will the chances of the Fed be raising rates further skyrocket? The deadly duo of firmer payroll data and mounting price pressures will leave the Fed with no choice but to continue the current pace of rate hikes. On the Aussie front, Reserve Bank of Australia (RBA) Deputy Governor Luci Ellis has called the neutral interest rate a guideline for policy rather than a destination, which suggests indicates that this is the official target rate (OCR) of 3.85% could be further adjusted by the central bank. At the Citi Australia and New Zealand Investment Conference, he further added that inflation expectations will remain well anchored in a 2-3% range for a year. Until then, developments outside the US could weigh on AUD/USD as the RBA begins raising lower interest rates and a sharper drop in exchange rate valuation. the rate could impact retail sentiment, as seen earlier this year.