AUD/USD drops below 0.6650 as US Dollar steadies ahead of US ISM Manufacturing PMI

• AUD/USD slips below 0.6650 amid US Dollar’s recovery.
• The US Dollar rebounds even though the Fed’s rate-cut prospects for September edge higher.
• Market speculation for the RBA tightening policy further has strengthened.

The AUD/USD pair falls to near 0.6635 in Monday’s European session. The Aussie asset is expected to witness more downside as the US Dollar recovers despite slight improvement in expectations that the Federal Reserve (Fed) will start reducing interest rates from the September meeting

The CME FedWatch tool shows that traders see a 52% for the central bank announcing a rate-cut move in September, which has improved from 49% recorded a week ago. Mild recovery in the Fed rate-cut speculation for September is driven by weak revised estimates for Q1 Gross Domestic Product (GDP) and slower Personal Spending growth for April.

The United States Q1 GDP grew by 1.3%, slower than preliminary estimates of 1.6%. US Personal Spending grew at a slower pace of 0.2% from the estimates of 0.3% and the former release of 0.7%. Consumer spending accounts for two-thirds of the US economic activity. Weak data has raised doubts over the US maintaining its strong economic outlook in the long-run.

In today’s session, investors will focus on the US ISM Manufacturing PMI for May, which will be published at 14:00 GMT. The factory data is estimated to have improved to 49.8 from the former reading of 49.2. However, a figure below the 50.0 threshold is considered as contraction.

Meanwhile, the near-term outlook of the Australian Dollar remains strong as investors hope that the Reserve Bank of Australia (RBA) could announce one more interest rate-hike due to stubbornly higher inflation data.

This week, the Australian Dollar will be guided by the Q1 GDP data, which will be published on Wednesday. The Australian economy is estimated to have expanded at a steady pace of 0.2%.