AUD/USD finds temporary support near 0.6650 as US PPI unexpectedly cools down

• AUD/USD finds cushion near 0.6650 after soft US PPI report for May boosts Fed rate-cut hopes for September.
• The Fed’s dot plot signaled only one rate cut this year.
• Australian Employment data for May beats estimates.

The AUD/USD pair finds support near 0.6650 in Thursday’s New York session. The Aussie asset bounces back as cooling United States consumer and producer inflation has prompted expectations of the Federal Reserve (Fed) to begin reducing interest rates from the September meeting.

The US PPI report for May showed that the monthly headline PPI contracted by 0.2% as gasoline prices slumped and the core reading was stagnant. Also, annual headline and core PPI decelerated to 2.2% and 2.3%, respectively, from their expectations.

The CME FedWatch tool shows that 30-day Fed Funds futures have priced in a 67.7% chance for rate cuts in September, up from 64.7% recorded on Wednesday. The tool also indicates that there will be two rate cuts this year against one projected in the Fed’s dot plot.

On Wednesday, the Fed’s dot plot showed that policymakers have scaled back projections for several rate cuts, one from their anticipated when they last met in March. Fed Chair Jerome Powell welcomed the soft inflation report but clarified that policymakers need more soft CPI reports to gain confidence that inflation is on course to return to the 2% target.

Meanwhile, market sentiment is positive regarding firm speculation about Fed rate cuts. The S&P 500 has opened slightly bullish. 10-year US Treasury yields have declined to 4.28%.

In Australia, stronger-than-expected Employment data for May has improved speculation that the Reserve Bank of Australia (RBA) will keep its Official Cash Rate (OCR) at its current levels for the entire year. In May, Australian employers hired 39.7K job-seekers, beating estimates of 30K and the prior release of 37.4K, downwardly revised from 38.5k. The Unemployment Rate declined to 4.0%, as expected, from 4.1% in April.