AUD/USD reaches a fresh three-week high around 0.7160s post-US PCE, ahead of Aussie Q1 GDP

• The Australian dollar extends its weekly rally to two straight weeks, up 1.68%.
• The AUD/USD rises on positive Australian and US economic data as recession fears wane and expectations for a non-aggressive US Fed.
• Next week, the US economic docket will be busy and will feature releases of ISM PMIs, Fed speakers, and employment data to digest.

The Australian dollar reclaims the 0.7100 mark and records a fresh three-week high, up 0.83%. At 0.7159, the AUD/USD reflects the upbeat market sentiment amid the release of high US inflation, though ticking down from the March reading.

Investors cheered that US inflation is back below 5%, and US equities climb

Before Wall Street opened, the US Department of Commerce revealed that inflationary pressures in the US are still high but lower than in March. The Core Personal Consumption Expenditure (PCE), the Fed’s favorite inflation gauge, rose by 4.9% YoY, higher than the recorded in March of 5.1%. The market reacted positively to the news, turning towards riskier assets, as they discount that the Fed might pause or slow the pace of tightening conditions.

In the same release, consumer spending increased by 0.9% in April and beat the street’s forecast as consumers boosted purchases of goods and services, a sign that could underpin US economic growth in the Q2 amid increasing worries of a recession.

Elsewhere, during the Asian session, Australian Retail Sales for April rose by 0.9% as expected, marking a rise for four consecutive months, depicting the resilience of consumers, albeit a higher inflation reading, around 5.1% in the Q1.

The release of upbeat economic data for Australia and the US helped risk appetite. That triggered the so-awaited upside break on the AUD/USD, clearing the previous weekly high at 0.7126. As the North American session winds down, the AUD/USD settled in the mid-range of the 0.7100-0.7200 area.

In the week ahead, the Australian docket will feature the Real GDP for Q1. TD Securities analysts expect them to rise by 1.2%, higher than expected. They added that “Growth momentum probably slowed in Q1 as economic activity was interrupted by the Omicron wave and floods in Queensland and NSW. However, we think these shocks are temporary as domestic demand should be relatively resilient, as reflected in the strong Q1 retail sales outturn. We expect the RBA to make a bolder policy move in June as the economy is on a strong footing.”.

On the US front, the docket will reveal the May ISM Manufacturing and the Business related PMIs, Fed speakers, and employment data.

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