AUD/USD drifts higher to 0.6680 amid USD weakening

The AUD/USD pair kicks off the new week on a positive note during the early Asian session on Monday. The weaker-than-expected US Producer Price Index (PPI) data on Friday has dragged the US Dollar lower and has lifted AUD/USD. The market is likely to be quiet in terms of US economic data due to a long weekend for the US, with Martin Luther King Jr Day on Monday. The pair currently trades near 0.6687, gaining 0.06% on the day. 

The US Bureau of Labor Statistics revealed on Friday that the headline PPI figure for December came in at 1.0% YoY versus 0.8% prior, and the Core PPI arrived at 1.8% YoY from 2.0% in November. Both readings were lower than the market consensus. On a monthly basis, the headline and Core PPI index remained flat at -0.1% and 0%, respectively. In response to the data, the Greenback and US Treasury bond yields edge lower. 

According to the CME FedWatch Tool, the market has priced in an 86% odds of a rate cut by March, with the overall 2024 easing cycle priced at around 166 basis points (bps), compared to 75bps projected by the Fed dot plot.

On the other hand, China’s Consumer Price Index (CPI) dropped 0.3% from a 0.5% fall seen in November, below a 0.4% decline expected. Additionally, China's December exports exceeded estimates, but total trade for the world's second-biggest economy fell in 2023. Nonetheless, the impact of these figures was limited as market participants focused on the sign of cooling inflation in the United States. 

Looking ahead, traders will monitor the Australian Westpac Consumer Confidence for January and TD Securities Inflation data, due on Tuesday. On the US docket, the NY Empire State Manufacturing Index will be due on Tuesday, and the December Retail Sales will be released on Wednesday. These figures could give a clear direction to the AUD/USD pair.