AUD/USD edges higher to 0.6660 as US Dollar eases ahead of US core PCE Inflation

AUD/USD finds bids near 0.6625 but remains sideways for more than a week.
The US core PCE inflation for May will guide the next move in the US Dollar.
Hot Australian CPI boosts prospects of more rate hikes by the RBA.

Sagar Dua FXStreet

The AUD/USD pair is slightly higher at 0.6660 in Thursday’s European session. The Aussie asset finds modest buying interest as the US Dollar (USD) edges down with United States (US) core Personal Consumption Expenditure Price Index (PCE) data for May in focus, which will be published on Friday. Broadly, the Aussie asset has been oscillating in the range of 0.6625-0.6690 from more than a week.

Investors will pay close attention to the US core PCE inflation data as it provides fresh cues over the interest rate outlook. Annually, the underlying inflation data is estimated to have softened to 2.6% from the prior release of 2.8%, with monthly figures growing at a slower pace of 0.1% from 0.2% in April.

Soft inflation numbers would boost expectations of early rate cuts by the Federal Reserve (Fed), while hot figures would provide more room for the Fed to maintain the current interest rate framework for a longer period. The scenario would be favorable for the US Dollar. Currently, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, has corrected modestly to near 105.90.

Meanwhile, traders have priced in two rate cuts this year and see the Fed choosing the September meeting as the earliest point to begin lowering interest rates. However, Fed policymakers singled out only one rate cut this year in the latest dot plot.

On the Aussie front, higher-than-expected growth in price pressures has prompted expectations of more rate hikes by the Reserve Bank of Australia (RBA). The monthly Consumer Price Index (CPI) report for May showed that rising prices of fuel, food, electricity, and rentals accelerated inflation to 4.0%, which was higher than expectations of 3.8% and the prior release of 3.6%.

(This story was corrected on June 27 at 12:00 GMT to say that the prior release of the monthly Consumer Price Index (CPI) was 3.6%, not 4.0%.)

Economic Indicator

Monthly Consumer Price Index (YoY)

The Monthly Consumer Price Index (CPI), released by the Australian Bureau of Statistics on a monthly basis, measures the changes in the price of a fixed basket of goods and services acquired by household consumers. The indicator was developed to provide inflation data at a higher frequency than the quarterly CPI. The YoY reading compares prices in the reference month to the same month a year earlier. A high reading is seen as bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.

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