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

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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.

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.