AUD/USD poised to rally but more stars need to align
June 27 (Reuters) -AUD/USD rallied Thursday and traded above the 10- and 21-DMAs but remained range bound, indicating bulls need additional catalysts if the rally off April's low is to resume.
Inflation in Australia struck a 6-month high in May, which rallied yields AU3YT=RR and further eroded the U.S. dollar's advantage over the Aussie dollar as yield spreads US2AU2=RR traded their tightest since January.
AUD/USD hardly reacted to spread tightening and held in the 0.6575-0.6725 zone it's been stuck in since May.
Fed rhetoric indicating only one rate cut in 2024 along with iron-ore DCIOc2 and copper HGv1 trending downward since mid May are likely tempering bullish enthusiasm for AUD/USD.
U.S. May PCE due Friday could spur bulls into action.
Core PCE on a month-on-month and year-on-year basis are expected below April's result. A report below May's estimates could send U.S. yields and U.S. dollar sharply lower as investors will price in higher probabilities Fed cuts will be larger than expected for 2024.
AUD/USD longs could benefit significantly on a downside PCE surprise and reversals for iron-ore and copper.
In that scenario AUD/USD's consolidation may end with the broader rally resuming.
That could hasten the process of completing a bull flag continuation pattern on daily charts, setting the scene for a break of May's monthly high.
Ultimately, that could put tests of the 0.6900/30 and 0.7000/50 zones on the cards.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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