AUD/USD struggles to extend upside above 0.6550 ahead of US PCE inflation data

• AUD/USD sees slight selling pressure above 0.6550 ahead of the US PCE inflation data for July.
• Traders are confident that the Fed will cut interest rates in September.
• The next trigger for the Australian Dollar will be the Caixin Manufacturing PMI data for August.

The AUD/USD pair struggles to extend its upside above the key level of 0.6500 during the European trading session on Friday. The Aussie pair trades broadly stable after a three-day winning streak, with investors awaiting the United States (US) Personal Consumption Expenditure Price Index (PCE) data for July, which will be published at 12:30 GMT.

Investors will closely monitor the US inflation data as it will influence market expectations for the Federal Reserve's (Fed) monetary policy outlook. Economists expect the US core PCE inflation, which is the Federal Reserve's (Fed) preferred inflation gauge, to have risen at a faster pace of 2.9% on year against 2.8% in June, with the monthly figure rising steadily by 0.3%.

 According to the CME FedWatch tool, there is an 85% chance that the Fed will reduce interest rates by 25 basis points (bps) to 4.00%-4.25% in the policy meeting in September.

On Thursday, Fed Governor Christopher Waller also argued in favor of reducing interest rates in the September meeting amid growing labor market concerns. "I would support a 25 bps cut at Fed's September meeting and anticipate additional rate cuts over the next 3-6 months as downside risks to the labor market have increased," Waller said at the Economic Club of Miami.

In Australia, Private Sector Credit for July has come in stronger than projected. On Month, the data rose at a faster pace of 0.7%, compared to expectations and the prior reading of 0.6%. Higher credit by the private sector indicates an improvement in business sentiment.

Going forward, the Australian Dollar (AUD) will be influenced by the Caixin Manufacturing PMI data for August, which is scheduled for Monday, given that the Australian economy relies heavily on its exports to China.