Rising US yields and Fed tightening outlook push Australian Dollar lower

• Higher US Treasury yields keep the Australian Dollar under pressure, extending its losses on Friday.
• Expectations of additional Federal Reserve interest rate hikes strengthen as US inflation remains persistent.
• The Australian currency faces pressure from contrasting monetary policy expectations in the United States and Australia.

Risk-sensitive currencies remain out of favour as US Treasury yields rise, keeping the Australian Dollar (AUD) on the back foot against the US Dollar (USD). AUD/USD is trading around 0.6775 at the time of writing, extending its decline on Friday to stand 0.43% lower on the day.

Stronger-than-expected US inflation figures have pushed the 10-year US Treasury bond yield to around 5.14%, a three-week high. October's Consumer Price Index (CPI) report recorded a 0.3% MoM rise in core inflation, above the expected 0.2%. It was the third successive month with an increase of 0.3%.

Investors are reconsidering the outlook for Federal Reserve (Fed) policy as inflation proves persistent. Deutsche Bank strategists say the latest data put the annualised pace of core inflation over the past three months at 3.75%, the fastest since April 2024.

Speaking on Friday, Chicago Fed President Austan Goolsbee cautioned that inflation was broadening beyond energy-related sectors. The central bank still had work to do to restore price stability, he stressed, adding that a deterioration in inflation data could warrant a more aggressive monetary policy response.

Expectations of further monetary tightening have seen little relief from the latest Producer Price Index (PPI) figures. Although the index's October increase of 0.3% MoM fell short of the 0.4% forecast, annual producer inflation picked up from 6.3% to 6.5%.

By contrast, the Reserve Bank of Australia (RBA) appears to have reached the end of its tightening cycle. The US Dollar benefits from this gap in policy expectations: higher US yields enhance the appeal of Dollar-denominated assets and sustain downward pressure on AUD/USD.

AUD/USD technical analysis: can support at 0.6766 hold?

A bearish near-term bias persists on the daily chart as AUD/USD extends its pullback to trade at 0.6778. The pair remains below both the 100-day simple moving average (SMA) at 0.7025 and the 200-day SMA at 0.7053. It is trying to stabilise just above horizontal support at 0.6766. Meanwhile, the Relative Strength Index (14), at around 30.7, is close to oversold territory, suggesting the decline is stretched without yet indicating a clear reversal.

A daily close under 0.6766 would bring the next support at 0.6663 into focus, where buyers could try to temper the bearish phase. On a recovery, the first resistance lies at 0.6834, followed by barriers at 0.6865 and 0.6894. Beyond these levels, the 100-day SMA at 0.7025 and the 200-day SMA at 0.7053 cap the broader trend.

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