AUD/USD holds steady above 0.6600; remains close to two-month high ahead of US PCE data

AUD/USD is seen consolidating as bulls pause for a breather ahead of the key US inflation data.
The divergent Fed-RBA policy expectations might continue to act as a tailwind for spot prices.
The currency pair remains on track to register strong gains for the second consecutive week.

Haresh Menghani FXStreet

The AUD/USD pair enters a bullish consolidation phase during the Asian session on Friday and oscillates in a range around the 0.6600 round figure, just below a nearly two-month high, touched the previous day. Meanwhile, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the upside, though bulls opt to wait for the crucial US inflation report before positioning for an extension of a two-week-old uptrend.

The US Personal Consumption Expenditure (PCE) Price Index for October will be published later today. The core gauge is seen as the US Federal Reserve's (Fed) preferred inflation gauge and will be looked upon for cues about the future rate-cut path. This, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide some meaningful impetus to the AUD/USD pair. In the meantime, the divergent Fed-Reserve Bank of Australia (RBA) policy outlooks should continue to act as a tailwind for the currency pair.

The recent US macro data pointed to a gradual cooling of the economy and signs of a softening labor market. Adding to this, comments from several Fed officials suggest that another interest rate cut in December is all but certain. In fact, traders are now pricing in a nearly 90% chance that the US central bank will lower borrowing costs by 25 basis points (bps) next week. This has been a key factor behind the USD's underperformance and should keep a lid on any attempted recovery from its lowest level since late October, though on Thursday.

Meanwhile, RBA Governor Michele Bullock admitted before a parliamentary committee earlier this week that inflation is not yet sustainably back within the central bank's 2% to 3% annual target band. Bullock also warned that the central bank is looking very hard at recent inflation numbers, and if the price pressure turns out to be permanent, it would have implications for the future path of monetary policy. This, in turn, fueled speculations that the RBA might hike interest rates next year, which underpins the Aussie and supports the AUD/USD pair.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD corrects lower, returns to 1.1650

EUR/USD could not sustain an earlier move to fresh tops just above 1.1680 on Thursday, coming under fresh selling pressure and revisiting the mid-1.1600s in the latter part of the NA session. The pair’s correction comes in response to an acceptable bounce in the US Dollar.

GBP/USD attempts some consolidation near 1.3350

GBP/USD is alternating gains with losses near 1.3350 on Thursday. The Greenback’s attempts to recover aren't really sticking, upbeat data or not, as traders stay confident that the Fed will deliver a 25 bps rate cut at its final meeting of the year.

Gold flat lines near $4,200 ahead of US PCE inflation release

Gold price (XAU/USD) trades on a flat note near $4,205 during the early Asian trading hours on Friday. Rising US Treasury yields and upbeat US jobs data cap upside for the precious metal. Traders might prefer to wait on the sidelines ahead of the key US inflation data. The US delayed the Personal Consumption Expenditures Price Index report for September, which will be published later on Friday.

XRP slides amid record on-chain activity, mixed technical signals

Ripple (XRP) is trading under pressure at the time of writing on Thursday, after bulls failed to break the short-term resistance at $2.22. The reversal may extend toward Monday’s low of $1.98, especially if risk-off sentiment persists in the broader cryptocurrency market.

Why the Fed may cut rates in December: Understanding the policy shift

The Fed has gone through a noticeable policy swing in recent months - from initiating a rate cut, to signaling a potential pause, and now shifting once again toward another cut in December. This has created understandable confusion among traders and investors trying to interpret the Fed’s reaction function.

XRP edges lower despite record on-chain activity and steady ETF inflows

Ripple is trading under pressure at the time of writing on Thursday, after bulls failed to break the short-term resistance at $2.22. The reversal may extend toward Monday’s low of $1.98, especially if risk-off sentiment persists in the broader cryptocurrency market.