Australian Dollar weakens as rising US yields, Fed tightening outlook weigh

• The Australian Dollar extends its decline on Friday, pressured by rising US Treasury yields.
• Persistent US inflation reinforces expectations of further interest rate hikes by the Federal Reserve.
• Diverging monetary policy outlooks between the United States and Australia weigh on the Australian currency.

AUD/USD extends its decline on Friday, trading around 0.6775, down 0.43% on the day at the time of writing. The Australian Dollar (AUD) remains under pressure against the US Dollar (USD), as rising US Treasury yields reduce investors' appetite for risk-sensitive currencies.

The yield on the 10-year US Treasury bond has climbed to around 5.14%, its highest level in three weeks, following stronger-than-expected US inflation data. The Consumer Price Index (CPI) showed that core inflation rose 0.3% MoM in October, exceeding expectations of 0.2% and marking the third consecutive monthly increase of 0.3%.

According to Deutsche Bank strategists, the latest figures bring the annualized pace of core inflation over the past three months to 3.75%, its fastest rate since April 2024. This persistent inflation is prompting investors to reassess the monetary policy outlook for the Federal Reserve (Fed).

Meanwhile, Chicago Fed President Austan Goolsbee warned on Friday that inflation is spreading beyond energy-related sectors, stressing that the central bank still has work to do to restore price stability. He added that worsening inflation data could justify a more aggressive monetary policy response.

The latest Producer Price Index (PPI) rose 0.3% MoM in October, below expectations of 0.4%, although annual producer inflation accelerated to 6.5% from 6.3%. The figures have done little to ease expectations of further monetary tightening.

On the Australian side, the Reserve Bank of Australia (RBA) appears to have completed its tightening cycle. This divergence in monetary policy expectations favors the US Dollar, as higher US yields make Dollar-denominated assets more attractive, maintaining downward pressure on AUD/USD.

AUD/USD technical analysis

In the daily chart, AUD/USD trades at 0.6778, extending its retreat and holding below the 100-day simple moving average (SMA) at 0.7025 and the 200-day SMA at 0.7053, which keeps the near-term bias bearish. The pair is attempting to stabilize just above the horizontal support at 0.6766, while the Relative Strength Index (14) around 30.7 hovers near oversold territory, hinting at stretched downside conditions but not yet signaling a clear reversal.

On the topside, initial resistance emerges at 0.6834, with further barriers clustered at 0.6865 and 0.6894 before the broader trend caps near the 100-day SMA at 0.7025 and the 200-day SMA at 0.7053. On the downside, a daily close below 0.6766 would expose the next support at 0.6663, where buyers could attempt to slow the bearish phase.

(The technical analysis of this story was written with the help of an AI tool. Know more.)