AUD/USD rebounds above 0.6550 ahead of Australian Retail Sales

• AUD/USD holds positive ground near 0.6555 in Monday’s early Asian session. 
• The US PCE inflation increases 2.5% YoY in June, underscoring an improving inflation environment. 
• The RBA’s hawkish stance might support the Aussie. 

The AUD/USD pair trades on a stronger note around 0.6555 during the early Asian session on Monday. The rising bets that the US Federal Reserve (Fed) would begin cutting interest rates in September weigh on the US dollar (USD). Market participants will monitor the Australian Retail Sales on Tuesday. On Wednesday, the Australian Consumer Price Index (CPI) and Fed Interest Rate Decision will be in the spotlight. 

Data released by the US Bureau of Economic Analysis on Friday showed that the Personal Consumption Expenditures (PCE) Price Index increased by 2.5% on a yearly basis in June, compared to 2.6% in May. This figure was in line with the market consensus. On a monthly basis, the PCE Price Index rose 0.1% after staying unchanged in May.

The US Core PCE inflation, which excludes volatile food and energy prices, rose to 2.6% in the same period, matching May's increase and coming in above the estimation of 2.5%. The core PCE Price Index rose 0.2% MoM in June, compared to 0.1% in May.

The Fed has kept its benchmark overnight interest rate in the current 5.25%-5.50% range since last July. However, the signs of cooling inflation and easing labour market conditions have fueled financial markets to expect three rate cuts this year, starting in September. This, in turn, exerts some selling pressure on the Greenback and creates a tailwind for AUD/USD.

On the Aussie front, the hawkish stance from the Reserve Bank of Australia (RBA) might limit further depreciation of the Australian Dollar (AUD). The RBA is likely to delay its rate cuts due to persistently high inflation. The markets bet on a potential rate hike in the fourth quarter, which mirrors the nearly 50% chance of either a September or November rate hike.