Australian Dollar firms on broad USD decline as traders focus on US inflation

• The Australian Dollar gains 0.75% on Monday, supported by a broad-based decline in the US Dollar.
• China's consumer inflation slows more than expected in October, while producer prices surprise to the upside.
• Strong US employment data reinforce expectations of a December rate hike, ahead of key inflation reports.

AUD/USD rebounds sharply on Monday, gaining 0.75% on the day to trade around 0.6915 at the time of writing. The Australian Dollar (AUD) benefits from broad-based weakness in the US Dollar (USD), despite mixed economic data from China and elevated expectations of further monetary tightening in the United States (US).

The latest data from China, Australia's largest trading partner, show that the Consumer Price Index (CPI) rose 0.7% YoY in October, slowing from 0.9% in September and falling short of market expectations of 0.8%. On a monthly basis, consumer prices remain unchanged, following a 0.2% increase in the previous month, in line with forecasts. Meanwhile, China's Producer Price Index (PPI) accelerated to 5.7% YoY in October, compared with 5% in September and expectations of 5.3%. The stronger-than-expected increase suggests persistent inflationary pressures at the production level, despite the slowdown in consumer prices.

These figures paint a mixed picture of the Chinese economy, whose outlook remains particularly important for the Australian Dollar due to the close trade ties between the two countries. However, US Dollar weakness appears to dominate market sentiment on Monday, allowing AUD/USD to maintain its bullish momentum.

The US Dollar Index (DXY), which measures the Greenback's performance against a basket of six major currencies, falls 0.44% on Monday to trade around 101.85, despite growing expectations of an interest rate hike by the Federal Reserve (Fed).

According to the CME FedWatch tool, markets now price in nearly an 80% chance of a 25-basis-point (bps) rate hike at the December Fed meeting. These expectations reflect the resilience of the US economy and the Fed's commitment to bringing inflation sustainably back toward its 2% target.

The latest US employment figures reinforce this outlook. Nonfarm Payrolls (NFP) increased by 165K in October, significantly exceeding expectations of 65K and improving from September's 60K reading. Meanwhile, the Unemployment Rate declined to 4.1%, compared with forecasts of 4.2%.

Investors now turn their attention to Tuesday's US Consumer Price Index report, followed by Friday's Producer Price Index release. Stronger-than-expected inflation figures could reinforce expectations of a December rate hike and support a rebound in the US Dollar, potentially weighing on AUD/USD.

On the geopolitical front, US President Donald Trump plays down the likelihood of renewed strikes against Iran, while Qatar's Prime Minister visits Washington for discussions aimed at ending the conflict. These developments help ease concerns in energy markets, with West Texas Intermediate (WTI) Oil falling more than 3% on Monday to trade around $86.85 at the time of press.

Against this backdrop, the near-term direction of AUD/USD will largely depend on US Dollar dynamics and upcoming US inflation data, which could reshape market expectations for the Fed's next monetary policy decision.