AUD/USD consolidates below 0.6900 ahead of US PCE data, bulls have the upper hand near YTD top

27 Sep 2024, 08:50 by Haresh Menghani · FXStreet

AUD/USD struggles for a firm intraday direction amid mixed fundamental cues.
The optimism over China’s stimulus measures lends some support to the Aussie.
A modest USD strength caps spot prices ahead of the key US PCE Price Index.

The AUD/USD pair oscillates in a narrow trading band below the 0.6900 mark through the first half of the European session on Friday and remains close to its highest level since February 2023 touched earlier this week.

The US Dollar (USD) attracts some buyers ahead of the US Personal Consumption Expenditure (PCE) Price Index and turns out to be a key factor acting as a headwind for the AUD/USD pair. That said, bets for another oversized interest rate cut by the Federal Reserve (Fed) in November hold back the USD bulls from placing aggressive bets. Apart from this, the upbeat market mood caps the safe-haven buck and lends some support to the risk-sensitive Aussie.

The global risk sentiment gets an additional boost after the People's Bank of China (PBOC) cut the seven-day repo rate to 1.5% from 1.7% and lowered the Reserve Requirement Ratio (RRR) by 50 bps. This comes on top of a slew of stimulus measures announced this week, which continues to fuel the risk-on rally across the global equity markets and underpins the China-proxy Australian Dollar (AUD) amid the Reserve Bank of Australia's (RBA) hawkish stance.

In fact, the Australian central bank reiterated on Tuesday that policy will need to be restrictive until confidence returns that inflation is moving sustainably towards the target range. Adding to this, RBA Governor Michele Bullock stated that the recent data has not significantly influenced the policy outlook. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the upside and supports prospects for an extension of over a two-week-old rally.

Economic Indicator

Personal Consumption Expenditures - Price Index (YoY)

The 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 YoY reading compares prices in the reference month to a year earlier. Price changes may cause consumers to switch from buying one good to another and the PCE Deflator can account for such substitutions. This makes it the preferred measure of inflation for the Federal Reserve. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.