Can the Australian Dollar sustain modest gains above 0.6900 ahead of the US PPI release?

Modest buying lifts AUD/USD towards 0.6915 in early Asian trading on Friday.
Market expectations of a December rate hike have strengthened following hawkish remarks by Fed officials.
Friday’s US October PPI release is the next focus for traders seeking a fresh catalyst.

A modest upward move takes AUD/USD to around 0.6915 in Friday’s early Asian trading, although the hawkish policy stance of the US Federal Reserve (Fed) could constrain further gains. Attention now turns to the US October Producer Price Index (PPI), due later on Friday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Markets see the Reserve Bank of Australia (RBA) as likely to have completed its rate-hiking cycle, widening the policy divergence with the Federal Reserve (Fed). Earlier this month, the Australian central bank increased its cash rate by 25 basis points (bps), taking it to 4.85%, an 18-year high.

A stronger-than-forecast US inflation reading, together with remarks from Fed governor Christopher Waller, fuelled growing bets on a 50-basis-point Fed increase in December. While Waller said he would back a quarter-point rise in December, he might favour a half-point increase if inflation figures prove worse than expected.

Friday’s US October PPI inflation release will be closely watched. For the headline measure, economists anticipate a 6.6% YoY increase in October; core PPI is forecast to rise 5.0% YoY over the same reporting period. Evidence of stronger US inflation could support the US Dollar (USD) against the Australian Dollar (AUD).

Will elevated Australian inflation expectations sharpen the RBA’s policy focus?

Persistent price pressures remain a key consideration for forthcoming RBA policy discussions and Australian Dollar sentiment. Analysts at Rabobank point out that Australia’s November inflation expectations “stayed at 5.3%, so over double the RBA’s mid-point target,” highlighting how elevated those pressures remain.

What does Williams’ warning on inflation mean for a resilient US economy?

A 7/10 FXS Speechtracker score, against a historical baseline of 6.1/10, places Fed’s Williams moderately above the average in hawkishness. His description of a robust, resilient US economy, coupled with inflation that is “stubbornly persistent” and “too elevated”, indicates that the central bank continues to see a need to tighten policy or keep it restrictive over time to bring inflation back to 2%. He also clarifies that monetary policy seeks to lower inflation rates, rather than reverse the overall price level, to avoid harming economic conditions. Taken together, the remarks point to further policy work rather than an imminent shift in direction.

Perceived hawkishness eased slightly as the FXS Fed Sentiment Index declined 0.08 points to 147.47, though it remained well above the neutral threshold of 100. Despite this marginal softening in tone, broader Fed communication is still clearly hawkish. That backdrop aligns with Williams’ emphasis on persistent inflation and the need for additional policy adjustment.

Technical Analysis: Can AUD/USD shake off its bearish bias below the 100-day SMA?

Near-term momentum on the daily AUD/USD chart remains bearish, with the spot price trading below both the 100-day Simple Moving Average (SMA) and the 20-day Bollinger midline. Initial support comes from the lower Bollinger Band at 0.6805, just beneath the pair’s current position. Meanwhile, the Relative Strength Index (14), at 33.41, is nearing oversold territory, suggesting that selling pressure still prevails but is becoming somewhat stretched.

For a corrective recovery to become possible and the prevailing bearish bias to ease, the pair would need a daily close above the 0.6962 region. The 20-day Bollinger SMA near 0.6962 presents immediate resistance, followed by the 100-day SMA at 0.7025, which strengthens the broader ceiling before the upper Bollinger Band around 0.7119. Conversely, a decisive break beneath lower Bollinger support at 0.6805 would leave room for additional declines.

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

Australian Dollar: Frequently Asked Questions

Which factors matter most for the Australian Dollar?

The Australian Dollar (AUD) is particularly sensitive to interest rates set by the Reserve Bank of Australia (RBA). Australia’s abundant natural resources also make the price of Iron Ore, its largest export, an important influence. Other drivers include economic conditions in China, Australia’s biggest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor sentiment matters too: a willingness to buy riskier assets (risk-on) supports AUD, while a preference for safe havens reflects a risk-off environment.

How can Reserve Bank of Australia decisions move the Australian Dollar?

By setting the interest rate at which Australian banks lend to one another, the Reserve Bank of Australia (RBA) affects borrowing rates across the economy and, in turn, the Australian Dollar (AUD). Its primary objective is to keep inflation stable within a 2-3% range, using increases or cuts in interest rates. Rates that are relatively high compared with those of other major central banks tend to support AUD; relatively low rates have the reverse effect. The RBA can also alter credit conditions through quantitative easing, which is negative for AUD, or quantitative tightening, which is positive for the currency.

Why does China’s economic performance matter for the Australian Dollar?

As Australia’s largest trading partner, China has a substantial influence on the Australian Dollar (AUD). Strong Chinese economic activity leads to greater purchases of Australian raw materials, goods and services, raising demand for AUD and lifting its value. When China’s economy expands more slowly than expected, the reverse applies. Consequently, Chinese growth figures that exceed or fall short of expectations often directly affect the Australian Dollar and its currency pairs.

Why do changes in Iron Ore prices affect the Australian Dollar?

With China its main destination, Iron Ore is Australia’s biggest export, worth $118 billion annually according to 2021 data. Its price can therefore influence the Australian Dollar. A rise in Iron Ore prices generally increases overall demand for AUD and lifts the currency, while falling prices have the opposite effect. Higher Iron Ore prices also tend to improve the prospects of an Australian trade surplus, providing another source of support for AUD.

Why is the trade balance important for the Australian Dollar?

Another influence on the Australian Dollar is the trade balance: the difference between a country’s export earnings and its import payments. Strong overseas demand for Australian exports can lift the currency when demand from foreign buyers exceeds the demand generated by Australia’s spending on imports. A positive net trade balance therefore supports AUD, whereas a negative balance has the reverse effect.