The AUD/USD pair experienced a resurgence in Friday’s New York session, reaching close to 0.6670 as the United States Bureau of Economic Analysis (BEA) released a soft Personal Consumption Expenditure Price Index (PCE) report for May. This report indicated that core inflation data grew at a slower pace of 0.1% month-on-month, down from the previous release of 0.2%, as anticipated, while the annual core PCE inflation rate decelerated to 2.6% from 2.8% in April.
The expected decline in US inflation data is likely to increase expectations of early rate cuts by the Federal Reserve (Fed), leading to a decrease in the US Dollar. The US Dollar Index (DXY) has shifted into negative territory, falling to 105.80 as a result. The CME FedWatch tool suggests that the Fed views the September meeting as the earliest point for policy-normalization changes, with anticipated rate cuts this year. However, Fed officials have only forecasted one rate cut this year, in contrast to market expectations of two.
Following the release of the US inflation data, San Francisco Fed Bank President Mary Daly stated in an interview with CNBC that while the soft PCE data is positive news, more positive data is needed to gain confidence in inflation declining to 2%. Meanwhile, expectations for additional rate hikes by the Reserve Bank of Australia (RBA) have bolstered the Australian Dollar. Market speculation increased after monthly Consumer Price Index (CPI) data showed a higher-than-expected year-on-year increase of 4.0% compared to expectations of 3.8% and the prior release of 3.6%.
The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis monthly, measures changes in prices of goods and services purchased by US consumers. This index is the Federal Reserve’s preferred measure of inflation. The year-on-year reading compares prices of goods in the reference month to the same month a year earlier, excluding food and energy components for a more accurate measurement of price pressures. A high reading is typically bullish for the US Dollar, while a low reading is bearish.
