Australian Dollar Steadies Near Two-Month Peak as Market Awaits Inflation Signal

Traders are holding their breath as AUD/USD consolidates around 0.6600, just shy of territory not seen in roughly eight weeks. The pause appears strategic rather than hesitant—participants are essentially waiting for the US inflation bombshell before making their next move. With October’s Core PCE Price Index due later today, the stage is set for potential volatility.

The Policy Divergence Keeping Aussie Afloat

The real story driving AUD/USD strength lies in starkly different monetary policy trajectories on either side of the Pacific. The divergence between Federal Reserve and Reserve Bank of Australia expectations continues to work in the Australian dollar’s favor—and this tailwind shows no signs of stopping.

On the US side, recent economic data suggests the world’s largest economy is cooling faster than anticipated. Labor market softness is becoming harder to ignore, and Fed officials are singing from the same hymn sheet: another rate cut next week is virtually baked in. Market pricing shows roughly a 90% probability of a 25 basis-point reduction in December. This dovish positioning has already weighed heavily on the US Dollar, pushing it to its weakest level since late October.

Australia tells a different story. RBA Governor Michele Bullock threw cold water on rate-cut expectations earlier this week when she acknowledged before parliament that inflation remains stubbornly above the central bank’s 2–3% target band. More pointedly, Bullock signaled the RBA is scrutinizing inflation numbers carefully—a coded message suggesting potential rate increases could be on the table if price pressures prove lasting rather than transitory.

Two Weeks of Gains and Technical Momentum

The AUD/USD pair is on pace to deliver solid gains for a second consecutive week, reflecting the cumulative impact of USD weakness and rate-hike speculation around the RBA. Technical strength above 0.6600 suggests bulls remain in control, though the consolidation pattern indicates traders are being cautious ahead of today’s crucial data point.

PCE Data: The Catalyst Everyone Is Watching

The Core Personal Consumption Expenditure Price Index—the Fed’s preferred inflation metric—carries outsized weight in markets. The consensus forecast sits at 2.9%, matching the previous month’s reading. While this baseline expectation might suggest continuity, any surprise in either direction could reshape bets on the December rate path and trigger swift AUD/USD movement.

A hotter-than-expected reading could force a reassessment of Fed rate-cut expectations, potentially supporting the greenback. Conversely, a softer print would reinforce the dovish narrative and maintain tailwinds for the Australian dollar. Given the technical setup near two-month highs and the underlying policy drivers, the pair appears primed to extend its uptrend once the inflation data clears the board.

The stage is set for a volatile Friday session—market participants are essentially trading on a hair trigger, waiting for PCE to either confirm or shake the current bias.