AUD/USD struggles to recover 0.6700 despite PPI canceling US slowdown in August

• AUD/USD struggles to gain strength despite corrections in the US dollar following the release of the annual US PPI report for August.
• Investors see the Fed cutting interest rates by 25 bps next week.
• Growing concerns about Australia’s economic outlook have prompted the RBA to cut rates.

AUD/USD is struggling for strong buying interest to extend its rally to near 0.6700 in Thursday’s North American session. The Australian asset is struggling to gain strength despite the release of softer-than-expected annual United States (US) Producer Price Index (PPI) data for August.

The PPI report showed that annual PPI rose at a slower pace of 1.7% versus estimates of 1.8% and from 2.1% in July, revised down from 2.2%. Over the same period, core producer inflation – which excludes volatile food and energy prices – rose steadily at 2.4%, slower than expectations of 2.5%. A slower pace in factory-gate price increases for goods and services suggests a sluggish trend in consumer spending, which generally drives Federal Reserve (Fed) rate cut bets.

However, the monthly headline and core PPI rose at a faster-than-expected pace of 0.2% and 0.3% respectively. Annual US PPI data weighed on the US dollar (USD). The US Dollar Index (DXY), which tracks the greenback against six major currencies, is down to near 101.60.

The impact of the US PPI is expected to be less on market speculation for the Fed’s interest rate guidance. The central bank is almost certain to start cutting its lending rates gradually from next week as Wednesday’s consumer price index (CPI) data for August showed signs of tightening inflationary pressures.

Meanwhile, the Australian dollar (AUD) is struggling to gain strength amid growing concerns about Australian economic growth due to the Reserve Bank of Australia’s (RBA) keeping interest rates higher. Deepening economic worry also forced market pundits to discuss the RBA’s pivot to policy easing.

Former RBA governor Bernie Fraser criticized the current Monetary Policy Committee (MPC) for focusing too much on inflation at the expense of the labor market. Fraser advised cutting the Official Cash Rate (OCR), warning of “recession risks” that could have serious consequences for employment.