AUD/USD Reverses Gains as US Dollar Recovers from Softer PCE Inflation
The Australian Dollar (AUD) reversed its initial rebound following the US inflation data release on Wednesday. The AUD/USD pair fell by 0.41% and traded at around 0.6960 after erasing its earlier gains.
The US Personal Consumption Expenditures (PCE) Price Index showed softer-than-expected inflation, with annual headline inflation remaining unchanged at 3.4% in August. The core PCE Price Index also remained steady at 3% YoY, below the market forecast of 3.3%. These figures initially triggered selling pressure on the US Dollar but were later offset by stronger employment and economic growth data.
The ADP reported that private-sector employment increased by 90K jobs in September, exceeding expectations for a 70K rise. The revision to annualized Gross Domestic Product (GDP) growth for the second quarter was also higher than expected, at 2.2%. These resilient economic activity figures led markets to reconsider the timing of further monetary tightening.
According to the CME FedWatch tool, investors now assign around a 35% chance to a rate increase in October, down from nearly 51% a day earlier and 71% a week ago. Expectations for a later move remain firm, with the chance of a rate hike in December rising to nearly 60%, from 49.4% a day earlier.