Above 0.6900: Australian Dollar inches higher ahead of US PPI release

0.6915 is within reach as AUD/USD inches higher in early Asian trading on Friday.
Market pricing for a December rate increase has strengthened following hawkish remarks from Fed officials.
Friday’s US October PPI release is the next catalyst traders are watching.

0.6915 is the level AUD/USD is approaching. The pair is making modest gains in Friday’s early Asian session, although the US Federal Reserve’s (Fed) hawkish position could constrain further advances. Later on Friday, attention turns to the US October Producer Price Index (PPI) release.

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

An 18-year high of 4.85% was reached earlier this month when the Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points (bps). Markets nevertheless judge that the Australian central bank has probably completed its rate increases, leaving its policy path increasingly at odds with that of the Federal Reserve (Fed).

A stronger-than-forecast US inflation report, followed by remarks from Fed governor Christopher Waller, prompted growing bets on a 50-basis-point December rate increase. Waller indicated support for a quarter-point rise in December, while leaving open the possibility that he might advocate a half-point increase if inflation figures exceed expectations.

Economists forecast October headline PPI growth of 6.6% YoY and a core increase of 5.0% YoY for the same reporting period. Friday’s US PPI inflation release will therefore draw close scrutiny. Evidence of stronger US inflation could lift the US Dollar (USD) relative to the Australian Dollar (AUD).

5.3% inflation expectations keep Australia’s RBA in focus

Australia’s November inflation expectations “stayed at 5.3%, so over double the RBA’s mid-point target,” according to analysts at Rabobank. Their observation highlights persistently high price pressures, which will remain a key consideration for forthcoming RBA policy discussions and sentiment towards the Australian Dollar.

7/10 hawkishness score: Williams stresses US resilience and high inflation

A 7/10 FXS Speechtracker reading, against a 6.1/10 baseline, places Fed official Williams’ tone moderately above its historical average for hawkishness. His description of a resilient, robust US economy, together with inflation that remains “stubbornly persistent” and “too elevated”, signals that the central bank still considers further tightening or prolonged restrictive policy necessary to bring inflation back to 2%. He also distinguishes between targeting the inflation rate and reversing the overall price level, with the latter risking damage to economic conditions. Taken together, his remarks point to further policy work rather than an imminent change of direction.

A 0.08-point decline brought the FXS Fed Sentiment Index to 147.47. Perceived hawkishness has eased slightly, but the reading remains well above the neutral 100 level. Despite the marginally softer tone, broader Fed communications therefore remain clearly hawkish, aligning with Williams’ emphasis on persistent inflation and the need for additional policy adjustment.

Technical Analysis: 100-day SMA caps AUD/USD’s bearish outlook

Trading below both the 100-day Simple Moving Average (SMA) and the 20-day Bollinger midline keeps AUD/USD’s near-term daily-chart outlook bearish. 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, nearing oversold territory. Selling pressure remains dominant, although the move lower appears somewhat stretched.

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

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

Australian Dollar: Key Questions Answered

Australian Dollar: Main Market Drivers

Interest rates determined by the Reserve Bank of Australia (RBA) are among the strongest influences on the Australian Dollar (AUD). Australia’s abundant natural resources also make the price of Iron Ore, its leading export, an important driver. Other influences include economic conditions in China, Australia’s biggest trading partner, alongside domestic inflation, economic growth and the Trade Balance. Investor appetite for risk matters too: demand for riskier assets, known as risk-on sentiment, supports AUD, while a preference for safe havens is described as risk-off.

Reserve Bank of Australia: Policy Effects on the Australian Dollar

By setting the interest rate at which Australian banks can 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 stable inflation of 2-3%, pursued through increases or reductions in interest rates. Rates that are relatively high compared with those of other major central banks tend to underpin AUD; relatively low rates have the reverse effect. Quantitative easing and quantitative tightening give the RBA additional ways to shape credit conditions. Easing is negative for AUD, whereas tightening is positive.

China’s Economy: Implications for the Australian Dollar

As Australia’s largest trading partner, China has a substantial influence on the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services, increasing demand for AUD and supporting its value. Growth that falls short of expectations produces the opposite effect. Consequently, upside or downside surprises in Chinese growth figures often feed directly into the Australian Dollar and its currency pairs.

Iron Ore Prices: A Driver of the Australian Dollar

With annual exports worth $118 billion according to 2021 data, Iron Ore is Australia’s largest export, most of which goes to China. Changes in its price can therefore move the Australian Dollar. Rising Iron Ore prices generally lift AUD as overall demand for the currency increases, while falling prices tend to have the opposite effect. Higher prices also make an Australian trade surplus more likely, providing another source of support for AUD.

Trade Balance: Its Influence on the Australian Dollar

Export receipts minus import expenditure constitute a country’s Trade Balance, another influence on the Australian Dollar. Strong overseas demand for Australian exports can raise the currency’s value when demand from foreign buyers exceeds Australia’s spending on imports. A positive net Trade Balance therefore supports AUD, while a negative balance has the reverse effect.