AUD/USD drops below 0.6500 as DXY defends 112.00, RBA policy hogs limelight

• AUD/USD has fallen below 0.6500, however, the upside remains favored.
• The RBA is expected to sound mildly hawkish as the optimal terminal rate is not so far.
• US core PCE price index is likely to land 10 bps higher at 4.7%.

The AUD/USD pair has slipped below the psychological support of 0.6500 after failing to test Thursday’s high at 0.6525. The decline in the asset is gradual as the upside bias is intact and amid an overall weakness in the US dollar index (DXY). In the Asian session, the DXY attempted to defend the establishment below 112.00, which resulted in a minor correction in the antipodean.

A lackluster performance is highly expected from the asset as investors are awaiting the announcement of October’s monetary policy decision by the Reserve Bank of Australia (RBA). RBA monetary policy minutes released on September 20 displayed that the policymakers also considered a rate hike of 25 basis points (bps), although an announcement was made for the fourth consecutive 50 bps hike. And, RBA Governor Philip Lowe is expecting the Official Cash Rate (OCR) to top around 3.85%.

Meanwhile, downbeat Caixin Manufacturing PMI data has failed to impact the aussie bulls. The economic data has landed at 48.1, lower than the expectations and the prior release of 49.5.

It is worth noting that Australia is a leading trading partner of China and a weaker-than-projected Caixin Manufacturing PMI data carries a significant impact on Australian exports.

On the US dollar index (DXY) front, the DXY has managed to defend sustainability below 112.00 for the time being. Clouds of pessimism over the US dollar index (DXY) have not faded yet and the pullback move could be terminated, which will resume the downside journey.

In today’s session, investors will focus on the core Personal Consumption Expenditure (PCE) price index data, which is seen higher at 4.7%, 10 bps above the prior release.