AUD/USD rises to 0.6670 after US PCE inflation figures

  • AUD/USD recovers daily losses and jumps to 0.6670 as US core PCE inflation declines in May.
  • Soft inflation numbers in the US would boost hopes of Fed rate cuts.
  • The RBA is expected to make further rate hikes this year.

The AUD/USD pair revives intraday losses and spikes near 0.6670 in the American session on Friday after the United States (US) Bureau of Economic Analysis (BEA) released a soft AUD/USD Price Index report. Personal Consumption Expenditure (PCE) for May. The report showed that core inflation data grew at a slower pace of 0.1% from the previous release of 0.2%, as expected, on a monthly basis. Additionally, annual core PCE inflation slowed as expected to 2.6% from 2.8% in April.

An expected drop in US inflation data is expected to boost expectations of early rate cuts by the Federal Reserve (Fed). The scenario is unfavorable for the US dollar. The Dollar Index (DXY) has turned negative and fallen to 105.80.

CME’s FedWatch tool shows the central bank views the September meeting as the earliest point to pivot toward policy normalization. According to the tool, the Fed is expected to make two rate cuts this year. Contrary to market expectations, Fed officials forecast only one rate cut this year.

Following the release of the US inflation data, San Francisco Fed President Mary Daly said in an interview with CNBC that the soft PCE data is good news, but we need more good data to gain confidence that inflation will ease to 2%.

On the Australian front, expectations of further rate hikes from the Reserve Bank of Australia (RBA) have strengthened the Australian Dollar. Market speculation over RBA rate hikes grew further after monthly Consumer Price Index (CPI) data came in higher than expected year-on-year. Inflation data rose at a faster pace of 4.0% compared to expectations of 3.8% and the previous release of 3.6%.

economic indicator

Core personal consumption expenditure price index (YoY)

The underlying price index for personal consumption expenditure is published by the Bureau of Economic Analysis and is an estimate of the change in prices for a basket of goods that consumers buy each month. “Core” excludes items such as food and energy whose volatility depends on certain seasons, thereby capturing an accurate estimate of the change in prices. It is considered an important indicator of inflation. The Federal Reserve believes that a reading within the 1% – 2% range would be in line with price stability policy. A reading above expectations is bullish for the dollar, while a reading below is bearish.

Read more.

Latest Post: Fri Jun 28, 2024 12:30 PM

Frequency: Monthly

Current: 2.6%

Dear: 2.6%

Previous: 2.8%

Fountain: US Bureau of Economic Analysis

After the GDP report is released, the US Bureau of Economic Analysis publishes the personal consumption expenditures (PCE) price index data along with 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 sharp shift in the Fed’s forward guidance and vice versa.

Source: Fx Street

You may also like