The Australian Dollar (AUD) gained ground on Friday as the US Dollar (USD) lost momentum after US inflation figures came in line with expectations, while weaker consumer sentiment and renewed tariff concerns dampened Greenback demand. At the time of writing, AUD/USD trades around 0.6550, recovering after a sharp two-day slide to three-week lows. The US Dollar Index (DXY) eased from recent highs, holding near 98.00, as traders reassessed the Federal Reserve’s (Fed) policy outlook.
Softer US data weighs on Greenback
The August Personal Consumption Expenditures (PCE) Price Index showed inflation largely aligned with forecasts. Core PCE rose 0.2% MoM and 2.9% YoY, unchanged from July, while headline PCE increased 0.3% MoM, lifting the annual rate to 2.7%. Personal income and spending also registered steady gains, underscoring resilient household demand. Meanwhile, the University of Michigan’s September survey showed consumer sentiment and expectations slipping, with inflation expectations edging lower across both one- and five-year horizons. The data offered no fresh hawkish signals for the Fed, prompting profit-taking in the Dollar and supporting an AUD recovery.
RBA decision takes center stage
Attention now turns to the Reserve Bank of Australia (RBA), which delivers its policy decision on Tuesday. A Reuters poll of 39 economists unanimously expects the cash rate to remain unchanged at 3.60%. ASX futures pricing also signals little chance of a cut, with markets awaiting Q3 CPI data in late October before reassessing the policy path.
Australian banks remain split on the timing of easing. ANZ, CBA and Westpac continue to project a 25 bps cut before year-end, most likely in November if inflation resumes its downward path. NAB, however, sees the first rate cut delayed until May 2026, citing sticky services inflation and firm household spending.
US labor market in focus next
In the US, the spotlight shifts to September’s Nonfarm Payrolls (NFP) report due Friday. Economists forecast a modest rebound, with payrolls expected to increase by 39K, up from 22K in August. The data will help shape expectations for the Fed’s next policy move.
