AUD/USD aims to recapture 0.6800 as cooling US inflation amplifies Fed rate-cut bets

• AUD/USD remains firm as the US Dollar weakens due to easing price pressures.
• Soft US inflation data for June boosts Fed rate-cut prospects.
• The Australian Dollar will dance to the tunes of the outcome of China’s third plenum meeting.

The AUD/USD pair rises after a mild correction to near 0.6755 in Friday’s European session. The Aussie asset aims to recapture the round-level resistance of 0.6800 as the US Dollar (USD) is under severe pressure due to growing speculation for the Federal Reserve (Fed) to start lowering interest rates from the September meeting.

The expectations for Fed rate cuts swell after the United States (US) Consumer Price Index (CPI) report for June signalled that progress in disinflation has resumed after stalling in the first quarter of this year. Annually, the headline inflation decelerated at a faster pace to 3.0% and the core CPI, which excludes volatile food and energy items, unexpectedly declined to 3.3%.

According to the CME FedWatch tool, a rate cut in September appears certain. Also, one more rate cut is expected in the November or December meeting.

Rising prospects of early rate cuts have weighed heavily on the US Dollar. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 104.35.

Meanwhile, the markets sentiment remains favorable for risk-sensitive assets. S&P 500 futures have posted nominal gains in European trading hours. Going forward, investors will focus on the US Producer Price Index (PPI) data for June, which will be published at 12:30 GMT.

On the Aussie front, investors await four-day China’s third plenum meeting, which is scheduled for next week. China’s Communist Party is expected to take measures to boost the real estate and manufacturing sectors. Being a proxy for China’s economic growth, strong fiscal spending announcements will strengthen the Australian Dollar (AUD). On the contrary, signs of lower fiscal spending than expected will do the opposite.