Much higher-than-expected first-quarter Australian inflation data has sent the AUD/USD higher on Wednesday, while giving the data-dependent Reserve Bank of Australia a real headache.

A Reuters poll before the RBA's March meeting showed most economists predicting the central bank wouldstart easing between August and November.
Market pricing in late March indicated a 75% chance of a 25 basis-point rate cut as early as August and close to 50 bps of cuts by year-end.

Following Wednesday's hot Q1 CPI, the market is pricing in less than a 25% chance of a 25 bps rate cut by year-end.
The strong inflation pulse will likely spur the RBA to reinstate a hawkish bias and perhaps even sharpen its language to include the possibility of having to tighten again.

The AUD/USD traded up to 0.6525 following the CPI release, just ahead of key resistance at 0.6530, where both the 55-day and 200-day moving averages converge. A clear break above that level would clear the way for a test of the April 9 high at 0.6644.

The next key event will be the U.S. core PCE price index for March due on Friday.
If it doesn't exceed the 2.7% annual rise expected, the AUD/USD will likely test higher levels.

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