Australian Dollar posts modest gains above 0.6900 ahead of US PPI data

• Near 0.6915, AUD/USD posts a modest gain in early Asian trading on Friday.
• Expectations of a December rate increase have strengthened following hawkish remarks from Fed officials.
• Friday’s US October PPI release is the next potential catalyst for traders.

US Producer Price Index (PPI) figures for October are due later on Friday, as AUD/USD trades slightly higher at around 0.6915 in the early Asian session. Further gains for the pair may nevertheless be constrained by the hawkish position of the US Federal Reserve (Fed).

A 25 basis point (bps) increase earlier this month took the Reserve Bank of Australia’s (RBA) cash rate to 4.85%, its highest level in 18 years. With markets judging that the Australian central bank has probably completed its rate rises, the policy gap with the Federal Reserve (Fed) is widening.

A stronger-than-forecast US inflation reading, together with remarks from Fed governor Christopher Waller, prompted growing expectations of a 50-basis-point Fed increase in December. According to Waller, he would back a quarter-point rise in December but might argue for a half-point increase should inflation figures exceed expectations.

Economists forecast annual headline PPI inflation of 6.6% for October, with the core measure expected to rise 5.0% YoY over the same reporting period. Friday’s US October PPI release will therefore draw close attention. Evidence of stronger US inflation could lend support to the US Dollar (USD) against the Australian Dollar (AUD).

Elevated Australian inflation expectations keep RBA policy in focus

November inflation expectations in Australia “stayed at 5.3%, so over double the RBA’s mid-point target,” analysts at Rabobank note. The reading highlights enduring price pressures, which will remain a key consideration for forthcoming RBA policy discussions and sentiment towards the Australian Dollar.

Williams stresses US resilience as inflation remains too high

A 7/10 FXS Speechtracker score, against a historical baseline of 6.1/10, places Fed official Williams’ remarks moderately on the hawkish side of his historical average. His focus on a robust, resilient US economy and inflation that is “stubbornly persistent” and “too elevated” indicates that the central bank still considers further tightening or a sustained restrictive stance necessary to bring inflation back to 2%. He also makes clear that monetary policy seeks to lower the inflation rate, 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 change of direction.

Although the FXS Fed Sentiment Index remains well above its neutral level of 100, it edged down 0.08 points to 147.47, signalling a small reduction in perceived hawkishness. The slight softening in tone leaves overall Fed communications clearly hawkish, in keeping with Williams’ emphasis on persistent inflation and the need for additional policy adjustment.

Technical Analysis: AUD/USD remains bearish below the 100-day SMA

Trading below both the 100-day Simple Moving Average (SMA) and the 20-day Bollinger midline, AUD/USD retains a bearish short-term bias on the daily chart. Initial support comes from the lower Bollinger Band at 0.6805, just beneath the current price. Meanwhile, the Relative Strength Index (14) stands at 33.41 and is nearing oversold territory, suggesting that selling pressure still prevails but is becoming somewhat stretched.

The first resistance lies near 0.6962 at the 20-day Bollinger SMA. Above that, the 100-day SMA at 0.7025 provides a broader barrier before the upper Bollinger Band around 0.7119. A decisive breach of lower Bollinger support at 0.6805 would leave the pair vulnerable to further declines. To temper the prevailing bearish bias and indicate room for a corrective recovery, a daily close above the 0.6962 area would be required.

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