AUD/USD Nears 0.6400: Focus on US Core PCE and Aussie CPI

The AUD/USD pair is currently undergoing a retracement, with its value hovering around the 0.6420 mark during the Asian trading session on Monday. This pullback comes after the pair experienced some upward momentum last week, buoyed by a combination of positive Australian PMI data and a weaker US Dollar.

Australia’s PMI data provided a mixed picture, with the Services PMI showing a modest improvement, rising to 50.5 in September from 47.8 in August. On the other hand, the Manufacturing PMI declined slightly from 49.6 to 48.2. The Composite Index, which combines both sectors, managed to move into expansion territory, climbing from 48.0 to 50.2.

The recent minutes from the Reserve Bank of Australia’s (RBA) September meeting hinted at a dovish stance. While the RBA acknowledged the possibility of additional tightening measures if inflation persists, they also emphasized the case for maintaining the current monetary policy. This delicate balance in the RBA’s approach underscores the importance of upcoming economic data, particularly Australia’s Consumer Price Index (CPI) and Retail Sales figures, which could significantly impact the AUD/USD pair’s trajectory.

In parallel, the US Dollar Index (DXY) is currently struggling around the 105.60 level, lacking significant momentum as traders await crucial economic data releases from the United States.

Market participants are closely monitoring several key US economic indicators, including Consumer Confidence, Durable Goods Orders, Initial Jobless Claims, and the Core Personal Consumption Expenditures Price Index (Core PCE). Of particular interest is the Core PCE, which is anticipated to drop from 4.2% to 3.9%. This metric serves as an essential gauge of inflationary pressure within the US economy and provides insights into its overall health.

The recent uptick in yields on the 10-year US Treasury note, coupled with statements from Federal Reserve officials signaling a willingness to tighten interest rates further, has added an additional layer of complexity to the AUD/USD pair’s outlook. Expectations of at least one additional rate hike by the end of the year have gained momentum, bolstered by the Fed’s commitment to maintaining higher interest rates to achieve its inflation target.

Notably, the Federal Reserve’s revised forecast has scaled back the anticipated rate hikes in 2024, reducing the projection from four to just two rate hikes. This adjustment has prompted market participants to reassess their outlook on the future path of US interest rates and their potential impact on the AUD/USD pair’s movement.