Rising US yields and Fed tightening outlook push Australian Dollar lower

• Rising US Treasury yields keep the Australian Dollar under pressure as it falls further on Friday.
• With US inflation proving persistent, expectations of additional Federal Reserve interest rate rises have strengthened.
• The Australian currency faces pressure from the contrasting monetary policy outlooks in the United States and Australia.

At around 0.6775 at the time of writing, AUD/USD is down 0.43% on the day, continuing its decline on Friday. Higher US Treasury yields are curbing investors’ appetite for risk-sensitive currencies, leaving the Australian Dollar (AUD) under pressure against the US Dollar (USD).

Stronger-than-expected US inflation figures have pushed the 10-year US Treasury bond yield to around 5.14%, a three-week high. According to the Consumer Price Index (CPI), core inflation increased by 0.3% MoM in October against expectations of 0.2%. This was the third successive monthly rise of 0.3%.

Deutsche Bank strategists calculate that the latest data put the annualised rate of core inflation over the past three months at 3.75%, the fastest since April 2024. With inflation remaining persistent, investors are reconsidering the outlook for Federal Reserve (Fed) monetary policy.

Warning on Friday that inflation was spreading beyond energy-related sectors, Chicago Fed President Austan Goolsbee emphasised that the central bank’s work to restore price stability was not yet complete. A deterioration in inflation data could warrant a more aggressive monetary policy response, he added.

October’s latest Producer Price Index (PPI) recorded a 0.3% MoM increase, short of the 0.4% expected. Annual producer inflation nevertheless picked up from 6.3% to 6.5%, leaving expectations of further monetary tightening largely undiminished.

By contrast, the Reserve Bank of Australia (RBA) appears to have reached the end of its tightening cycle. The gap between monetary policy expectations supports the US Dollar: higher US yields increase the appeal of Dollar-denominated assets, keeping AUD/USD under downward pressure.

AUD/USD technical analysis: Pair remains under pressure

Trading at 0.6778 on the daily chart, AUD/USD continues to retreat beneath the 100-day simple moving average (SMA) at 0.7025 and the 200-day SMA at 0.7053. This leaves the near-term outlook bearish. An attempt to stabilise is under way just above horizontal support at 0.6766. Meanwhile, the Relative Strength Index (14), at around 30.7, remains close to oversold territory, suggesting the decline is becoming stretched without yet indicating a clear reversal.

Any recovery would first encounter resistance at 0.6834, followed by barriers at 0.6865 and 0.6894. Beyond these, the 100-day SMA at 0.7025 and the 200-day SMA at 0.7053 cap the broader trend. Conversely, a daily close beneath 0.6766 would bring the next support at 0.6663 into view, where buyers could seek to temper the bearish phase.

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