AUD/USD gains on commodity strength as US inflation data, Fed rate cut eyed

• AUD gains against the USD, driven by rising commodity prices.
• US-China trade tensions persist, though markets bet on a diplomatic breakthrough.
• US inflation data is due on Friday, with a Fed rate cut nearly certain in October.

AUD/USD appreciates 0.40% on Thursday, trading around 0.6510 at the time of writing, buoyed by a renewed appetite for commodity-linked currencies, while investors remain cautious ahead of the release of the September US inflation report, due on Friday.

The Australian currency continues to outperform, supported by rising commodity prices, notably Oil and Gold, and a general rebound in the metals complex. This strength contrasts with a tense geopolitical context as Washington is considering imposing new restrictions on the export of software products to China, according to a Reuters report.

These measures, which could come into force as early as November 1, would be in response to Beijing's recent decision to limit the export of rare earths to the United States. This situation is unfavorable to the Australian economy, which is heavily dependent on exports to China.

However, markets seem to be temporarily ignoring trade risk, betting on a diplomatic outcome following the meeting scheduled for this weekend in Malaysia between US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng.

Investors' main expectation remains Friday's publication of the US Consumer Price Index (CPI) for September, delayed due to the US government shutdown. Economists expect headline inflation to accelerate to 3.1% YoY, from 2.9% in August, while core inflation (excluding energy and food) should remain stable at 3.1%. These figures will be decisive for US monetary policy expectations while markets remain almost certain that the Federal Reserve (Fed) will cut interest rates next week.

In Australia, market attention turns to the release of preliminary Purchasing Managers Index (PMI) data scheduled for later in the day, ahead of a speech by Reserve Bank of Australia (BRA) Governor Michele Bullock early on Friday.