• AUD/USD trades little changed on Friday as the US Dollar retreats despite strong PPI data.
• RBA rate hike bets continue to underpin the Australian Dollar.
• Markets await Australia’s TD-MI Inflation Gauge and the US Manufacturing PMI on Monday.

The Australian Dollar (AUD) trades flat against the US Dollar (USD) on Friday as the Greenback reverses earlier gains despite stronger-than-expected US Producer Price Index (PPI) data. At the time of writing, AUD/USD is trading around 0.7112 and is on track for an eighth consecutive week of gains.

The headline PPI rose 0.5% MoM, beating the 0.3% forecast, while December’s figure was revised down to 0.4% from 0.5%. On a yearly basis, PPI increased 2.9%, above expectations of 2.6%, though slightly below the previous 3% reading.

Core PPI, which excludes food and energy, climbed 0.8% MoM, well above the 0.3% estimate and accelerating from December’s revised 0.6% gain. On an annual basis, core producer inflation advanced to 3.6% from 3.3%.

The data reinforces what Federal Reserve (Fed) officials have been signaling in recent weeks, that inflation pressures remain sticky and progress toward the 2% target is uneven. The stronger core reading in particular supports the case for keeping monetary policy restrictive for longer, even as markets continue to debate the timing of the interest rate cuts.

According to the CME FedWatch Tool, markets widely expect the Fed to keep interest rates unchanged at the March and April meetings. The probability of a June rate cut has declined, with July now seen as the preferred timing for the Fed to resume easing later this year.

The shift in rate-cut expectations could help limit deeper losses in the US Dollar. However, a meaningful recovery may remain unlikely as renewed uncertainty surrounding US trade policy continues to weigh on overall market sentiment.

Apart from broad US Dollar weakness, the Aussie remains well supported by hawkish Reserve Bank of Australia expectations, as inflation remains above the RBA’s 2-3% target range.

While the Board may pause in March to assess the impact of February’s hike, markets and major banks, including CBA, Westpac, ANZ and NAB, expect another 25-basis-point increase at the May meeting, which would lift the cash rate to 4.10%.

Attention now turns to Australia’s TD-MI Inflation Gauge due on Monday. In the United States, traders will also look ahead to the Manufacturing Purchasing Managers’ Index (PMI) release.