Australian Dollar edges higher above 0.6900 ahead of US PPI release
- AUD/USD drifts higher to near 0.6915 in Friday’s early Asian session.
- Hawkish comments from Fed officials have boosted market bets on a December rate hike.
- Traders await the US October PPI data on Friday for fresh impetus.
The AUD/USD pair edges higher to around 0.6915 during the early Asian session on Friday. However, the potential upside for the pair might be limited amid a hawkish stance from the US Federal Reserve (Fed). The US October Producer Price Index (PPI) data will be published later on Friday.
The Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points (bps) to an 18-year high of 4.85% earlier this month. Markets view the Australian central bank as likely finished with rate hikes, creating a widening policy divergence with the Federal Reserve (Fed).
Bets on a 50-basis-point Fed rate hike in December started to grow after a hotter-than-expected US inflation report and comments by Fed governor Christopher Waller. Waller said that he would support a quarter-point rate increase in December and might push for a half-point move if inflation data is worse than expected.
The US October PPI inflation data will be in the spotlight on Friday. Economists expect the headline PPI to show a rise of 6.6% YoY in October, while the core PPI is projected to show an increase of 5.0% YoY during the same report period. Any signs of hotter inflation in the US could boost the US Dollar (USD) against the Australian Dollar (AUD).
RBA focus sharpened as Australia inflation expectations stay elevated
Analysts at Rabobank highlight that November inflation expectations in Australia “stayed at 5.3%, so over double the RBA’s mid-point target,” underscoring the persistence of elevated price pressures that will remain central to upcoming RBA policy deliberations and Australian Dollar sentiment.
Williams flags resilient US economy but warns inflation still too high
Fed’s Williams delivers a moderately more hawkish tone relative to the historical average, with a 7/10 FXS Speechtracker score versus a 6.1/10 baseline. The emphasis on a resilient, robust US economy alongside “stubbornly persistent” and “too elevated” inflation underscores that the central bank still sees a need to tighten or maintain restrictive policy over time to return inflation to 2%, while clarifying that monetary policy targets inflation rates rather than rolling back overall price levels to avoid damaging economic conditions. Overall, the speech reinforces a narrative of ongoing policy work ahead rather than signaling an imminent pivot.
The FXS Fed Sentiment Index slipped by 0.08 points to 147.47, indicating a slight pullback in perceived hawkishness even as the index remains firmly above the neutral 100 mark. This combination suggests that, despite a marginal moderation in tone, the broader Fed communication backdrop still resides in clearly hawkish territory, consistent with Williams’ message of persistent inflation and the need for further policy adjustment.
Technical Analysis: AUD/USD keeps a bearish vibe under the 100-day SMA
In the daily chart, AUD/USD extends a bearish near-term tone as spot holds beneath the 100-day Simple Moving Average (SMA) and the 20-day Bollinger midline. The pair is hovering just above the lower Bollinger Band, now providing initial support at 0.6805, while the Relative Strength Index (14) at 33.41 is approaching oversold territory, hinting that downside pressure remains dominant but somewhat stretched.
On the topside, immediate resistance is located at the 20-day Bollinger SMA near 0.6962, with the 100-day SMA at 0.7025 reinforcing a broader cap ahead of the upper Bollinger Band around 0.7119. On the downside, a clear break below the lower Bollinger support at 0.6805 would open the door to further losses, whereas a daily close back above the 0.6962 region would be needed to ease the current bearish bias and signal scope for a corrective rebound.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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