Rising US yields and Fed tightening outlook put Australian Dollar under pressure

• Higher US Treasury yields keep the Australian Dollar on a downward path on Friday.
• Expectations of additional Federal Reserve interest rate increases remain supported by stubborn US inflation.
• The Australian currency faces pressure as monetary policy expectations in the United States and Australia move apart.

AUD/USD is trading near 0.6775. At the time of writing on Friday, the pair is down 0.43% on the day, extending its losses. Higher US Treasury yields are curbing demand for risk-sensitive currencies, keeping 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. Core inflation increased 0.3% MoM in October, according to the Consumer Price Index (CPI), above the 0.2% forecast. It was the third consecutive monthly rise of 0.3%.

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

Speaking on Friday, Chicago Fed President Austan Goolsbee cautioned that inflation was broadening beyond energy-related sectors. Restoring price stability still requires work by the central bank, he stressed. He also said a deterioration in inflation data could warrant a more aggressive monetary policy response.

Expectations of further monetary tightening have barely eased following the latest Producer Price Index (PPI) release. The index increased 0.3% MoM in October, short of the 0.4% forecast, but annual producer inflation picked up from 6.3% to 6.5%.

By contrast, the Reserve Bank of Australia (RBA) appears to be at the end of its tightening cycle. The gap in policy expectations supports the US Dollar: higher US yields enhance the appeal of Dollar-denominated assets, leaving AUD/USD under continued downward pressure.

AUD/USD: Technical outlook remains bearish

At 0.6778 on the daily chart, AUD/USD continues to retreat. The near-term outlook remains bearish, with the pair below both the 100-day simple moving average (SMA) at 0.7025 and the 200-day SMA at 0.7053. It is trying to find stability just above horizontal support at 0.6766. Meanwhile, the Relative Strength Index (14), at around 30.7, is close to oversold territory. This suggests the decline is stretched, although there is no clear reversal signal yet.

A daily close beneath 0.6766 would bring the next support at 0.6663 into focus, where buyers could try to temper the bearish phase. For any recovery, the first resistance is at 0.6834, followed by barriers at 0.6865 and 0.6894. Beyond those 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.)