Dollar Edges Higher Ahead of PCE Inflation Data; Aussie Dollar Soars on Hot CPI

The U.S. dollar traded in a narrow range Wednesday as investors braced for a crucial inflation report that could influence the Federal Reserve's policy path. In contrast, the Australian dollar surged to its highest level since early June after a surprisingly strong domestic inflation reading intensified expectations for another central bank rate hike.

Aussie Dollar Rallies on Inflation Surprise

The Australian dollar was the day's standout performer, with the AUD/USD pair climbing 0.3% to $0.718. The rally was triggered by data showing Australia's monthly Consumer Price Index (CPI) rose 1.0% in July, significantly above the consensus forecast of 0.8%, according to Investing.com.

While the annual inflation rate eased to 3.5% from 3.8%, a core measure closely watched by the Reserve Bank of Australia (RBA)—the trimmed mean inflation indicator—remained elevated, holding the annual core rate at 3.6%. Following the report, market participants increased their bets on the RBA delivering a fourth interest rate hike this year to combat persistent price pressures.

Dollar Steady as Traders Await PCE Data

The U.S. Dollar Index, which measures the greenback against a basket of major currencies, edged up 0.1% to 98.98, though it remained near a three-month low hit last week. Currency markets were largely subdued ahead of the release of the U.S. Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred gauge of inflation.

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The PCE data, due later Wednesday, is a critical input for traders assessing the Fed's next move and comes just before the central bank's annual economic symposium in Jackson Hole. The report will provide fresh insight into whether inflationary pressures are aligning with the Fed's targets, a key factor in its monetary policy deliberations.

Other Major Currencies in Focus

Elsewhere, other major currency pairs saw limited movement as traders positioned themselves for the U.S. data release.

• Japanese Yen: The dollar dipped slightly against the yen, with USD/JPY falling 0.1% to 158.97. The yen found support from growing expectations that the Bank of Japan could raise interest rates as soon as September, a view supported by a recent Reuters poll of economists.
• Canadian Dollar: The loonie remained under pressure, with USD/CAD rising 0.2% to C$1.39. The currency has been weakened by the breakdown of trade negotiations between the U.S. and Canada, which resulted in Washington announcing 50% tariffs on roughly $20 billion of Canadian goods, prompting Ottawa to announce reciprocal tariffs.