AUD/USD recovers to near 0.6600 as sentiment remains upbeat ahead of US core PCE data

• AUD/USD bounces back to near 0.6600 on improved market sentiment.
• Investors await the US core PCE data for fresh guidance on interest rates.
• Australian inflation is anticipated to soften to 4.3% in the last quarter of 2023.

The AUD/USD pair rebounds to near the round-level resistance of 0.6600 in the late London session. The Aussie asset recovers as appeal for risk-perceived currencies ahead of the United States Core Personal Consumption Expenditure (PCE) Price Index data for December, which will be released at 13:30 GMT.

S&P500 futures have recovered majority of losses generated in the Asian session, portraying a sharp revival in the risk-appetite of investors. The US Dollar Index (DXY) has fallen to near 103.38 after failing to recapture the monthly high of 103.82. 10-year US Treasury yields have dropped to near 4.11%.

Market sentiment is improving despite investors see the Federal reserve (Fed) reducing interest rates from May instead of March amid resilient US economy. The US economy grew at a robust pace of 3.3% in the last quarter of 2023, which itself is encouraging for growth prospects in 2024. This will allow Fed policymakers to avoid rush for commencing the ‘rate-cut’ campaign.

Meanwhile, investors await fresh guidance for the interest rate outlook, which would be offered by the US core PCE price index data. As per the estimates, monthly core PCE was up by 0.2% against slight increase of 0.1% in November. The annual inflation gauge rose at a slower pace of 3% vs. former growth rate of 3.2%.

On the Australian Dollar front, investors await the Q4 Consumer Price Index (CPI) data, which will release next week. Price pressures are anticipated to soften significantly to 4.3% from 5.4% reading in the July-September quarter, which will provide some relief to Reserve Bank of Australia (RBA) policymakers.