AUD/USD approaches 0.6700 modestly as Fed rate-cut prospects improve

AUD/USD inches toward 0.6700 as the US Dollar is under pressure.
Soft US inflation in May has prompted Fed rate-cut hopes.
The RBA could tighten its monetary policy further as price pressures accelerated in May.

The AUD/USD pair marches toward the round-level resistance of 0.6700 in Monday’s European session. The Aussie asset gains as the US Dollar (USD) faces sharp selling pressure amid firm speculation that the Federal Reserve (Fed) will start lowering interest rates from the September meeting.

The expectations for Fed rate cuts have been prompted by an expected slowdown in price pressures. The United States (US) Personal Consumption Expenditure (PCE) report for May showed that the annual core inflation measure decelerated to 2.6% from the prior release of 2.8%.

A decline in the US inflationary pressures has boosted expectations of early rate cuts by the Fed. The CME FedWatch tool shows that the central bank will begin reducing its key borrowing rates from the September meeting.

For more interest rate cues, investors await the US labor market and PMI data for June, which are lined up this week.

In Monday’s session, investors will focus on the US ISM Manufacturing PMI data, which will be published at 14:00 GMT. The Manufacturing PMI is estimated to have improved to 49.0 from May’s reading of 48.7. However, a figure below the 50.0 threshold is itself considered as contraction in factory activities.

On the Aussie front, major triggers for the Australian Dollar this week, such as the Reserve Bank of Australia (RBA) minutes and monthly Retail Sales for May. The RBA minutes will provide more cues about whether the central bank will hike interest rates further.

The recent surge in price pressures in Australia has strengthened the likelihood of further policy tightening by the RBA. The annual Monthly Consumer Price Index (CPI) rose at a faster pace of 4.0% in May than estimates of 3.85 and the prior release of 3.6%.

Economic Indicator

RBA Meeting Minutes

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.

Why it matters to traders?

The Reserve Bank of Australia (RBA) publishes the minutes of its monetary policy meeting two weeks after the interest rate decision is announced. It provides a detailed record of the discussions held between the RBA’s board members on monetary policy and economic conditions that influenced their decision on adjusting interest rates and/or bond buys, significantly impacting the AUD. The minutes also reveal considerations on international economic developments and the exchange rate value.

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