The AUD/USD pair hit a two-week low on Wednesday, declining towards the mid-69 level. Sellers of AUD/USD tested the support level at 0.6950 (the lower line of the Bollinger Bands on the H4 timeframe) and attempted to establish themselves below this target.

Notably, the pair is demonstrating a downward trend amid the overall weakening of the US dollar. Despite another round of escalation in the Middle East, the safe-haven greenback did not benefit. Market participants believe that the current round of tension between the US and Iran is limited and will ultimately conclude with both sides returning to negotiations. Such conclusions are not favorable for the US currency.

However, the AUD/USD pair declined on Wednesday despite a weaker greenback. This indicates that the Australian dollar is the primary driver of the decline, having come under considerable pressure from inflation reports.

The CPI data released on Wednesday for Australia was noticeably weaker than market expectations, signaling that the country's disinflation process is gradually gaining momentum. This is true for both the monthly CPI indicator and the quarterly report, which holds much greater significance for the Reserve Bank of Australia when making monetary decisions.

In the monthly report, the annual CPI rate in June slowed to 3.8%, down from 4.0% the previous month. Most analysts had forecast the figure to remain stagnant at May's level. It is also worth noting that this indicator has been declining for the third consecutive month, after peaking at 4.6% in March. Furthermore, the monthly consumer price index has entered negative territory for the second month in a row: following a 0.7% decline in May, it decreased by 0.1% in June (growth forecast: 0.2%). The main factor behind the slowdown in the monthly CPI was the drop in fuel prices, which offset the ongoing increase in housing and utility costs.

An even more important factor for the Aussie was the second-quarter inflation growth report, as the RBA relies on these figures to assess the sustainability of inflation dynamics. The overall CPI rose by only 0.6% quarter-over-quarter, down from a 1.4% increase the previous quarter. The consensus forecast was at 0.8%. On an annual basis, quarterly inflation also slowed to 3.9% (forecast: 4.1%). Notably, this is the first slowdown after three consecutive quarters of growth, indicating that the peak in price acceleration has likely been passed.

The core inflation measure (Trimmed Mean) is particularly significant for the RBA's future actions. This indicator is used by the regulator as a primary benchmark for assessing price pressure and determining the future course of monetary policy. The core index rose by 0.8%, with a forecast of a 0.9% increase. The annual figure was 3.6%, while most analysts had expected acceleration to 3.7% (with other estimates suggesting an increase to 3.8%).

However, it cannot be said that Australia's inflation problem is fully resolved. The housing sector (construction costs for new homes, rental prices) and the services sector (+4.0% year-on-year) remain the most resilient sources of price growth. Nevertheless, the nature of inflation is changing: while several months ago price growth was broad-based, it is now primarily concentrated in internal, less volatile components of the economy, with the influence of external factors noticeably weakening.

The structure of the report also indicates that annual price growth in the "Transportation" category plummeted to 0.1% (down from 3.3% in May) – again mainly due to a decrease in automotive fuel costs (down 10.9% for the month). Commodity inflation has dropped to a four-month low (i.e., 3.5%). Price growth in the healthcare sector has also slowed (to 3.7%) as well as in the clothing/shoes sector (4.9%).

In response to the release, the market revised its expectations regarding the RBA's future actions. Following the reports, the likelihood of an interest rate hike in the foreseeable future has decreased to nearly zero, as the published data convinced traders that the current rate level is already exerting the necessary "cooling" effect on the economy, allowing inflation to gradually return to the target range.

Moreover, it appears that the market will begin to cautiously reassess the prospects for RBA monetary policy, gradually pricing in the likelihood of the first rate cut in the coming quarters if subsequent labor market and inflation data confirm the current trend.

The existing fundamental backdrop allowed bears in the AUD/USD pair to test the support level of 0.6950 (the lower line of the Bollinger Bands on the four-hour chart). However, despite the bearish momentum, sellers failed to establish themselves below this level. Therefore, entering short positions now is risky: the absence of a confident break below 0.6950 warns of risks of a corrective rebound. Only a settlement below this level would signal a continuation of the price decline towards the mark of 0.6900 (the lower line of the Bollinger Bands on the D1 timeframe).