Australian dollar starts week with losses

The Australian dollar is back in negative territory today after ending a nasty skid on Friday. AUD/USD is trading at 0.6537 in the North American session, down 0.17% on the day. The Aussie has been on a significant skid since July 15, declining 3.7% against the US dollar.

It’s a light day on the data calendar, with no events out of the US or Australia.

Fed meeting may set stage for rate cut in September

Federal Chair Jerome Powell and other Fed policy makers have sounded dovish in recent weeks as inflation has fallen. Friday’s PCE inflation data further strengthened the case for a September rate cut, with the markets pricing in at 25-basis point cut at 89% and a half-point cut at 10%, according to the CME’s FedWatch, which means a rate cut is practically a given.

The Fed meets this week as well but the market focus is clearly on the September meeting, which will likely see the first rate cut since March 2020, during the corona epidemic. The upcoming meeting could set the stage for the September rate cut and the markets will be closely watching the rate statement and Powell’s follow-up press conference.

On Friday, the US released the PCE Price index, which is considered the Fed’s preferred inflation indicator. The PCE Price index ticked lower to 2.5% y/y in June, down from 2.6% in May and in line with expectations. Core PCE remained at 2.6%, just above the market estimate of 2.5%. Monthly, the news the PCE Price index rose 0.1% and the core rate climbed 0.2%. As well, personal spending and income both eased in July.

The data indicates that inflation is dipping and US consumer spending is lower. This supports a rate cut but we won’t hear from the Fed until Wednesday’s meeting as there is blackout period which prohibits any public statements or interview from FOMC members ahead of the rate decision.

AUD/USD Technical

• AUD/USD is testing support at 0.6528. Below, there is support at 0.6508
• There is resistance at 0.6548 and 0.6568

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