The AUD/USD pair extends the decline to near 0.6785 during the early European trading hours on Friday. Growing bets of a half-point Federal Reserve (Fed) rate hike provide some support to the US Dollar (USD) against the Australian Dollar (AUD). Traders brace for the US October Producer Price Index (PPI) report, which is due. later on Friday.
US Treasury yields rose in the previous session after President Donald Trump said that Washington does not need a deal with Iran, as traders weighed the chance of a larger-than-usual Fed rate increase next month.
Additionally, Fed Governor Christopher Waller said that a 50-basis-point rate hike should be considered if core inflation remains elevated.
Traders are now pricing in nearly an 85.5% chance of a US rate hike when the Fed next meets December 8-9 and put odds of a half-point hike at 14.5%, according to the CME FedWatch tool.
"If we do see a further sharp selloff in equity markets, that could be a negative for the US Dollar," said Carol Kong, currency strategist at Commonwealth Bank of Australia.
"But I think there's a possibility it can continue its strong momentum in the near term, particularly with Fed officials speaking next week. If we see further support for a 50-basis-point hike, there's further upside in the Dollar too,” Carol added.
The release of the RBA meeting Minutes and the FOMC Minutes will be the highlights next week, as they might offer clearer signals on future rate paths.
Australia inflation expectations stay elevated versus RBA target
Analysts at Rabobank highlight that November inflation expectations in Australia “stayed at 5.3%, so over double the RBA’s mid-point target,” underscoring the persistence of price pressures that remain well above the central bank’s desired level.
Williams flags resilient US economy but warns inflation still too elevated
Fed’s Williams delivered a speech that scored 7/10 on the FXS Speechtracker, modestly above the 6.1/10 historical average and signaling a slightly more impactful tone relative to the established baseline. Emphasis on a “resilient” and “robust” US economy, alongside warnings that inflation remains “stubbornly persistent and elevated,” underscores a stance that the central bank still has work to do and will need to act over time to bring inflation back to 2%, while clearly distinguishing a focus on inflation rates rather than attempting to push overall price levels lower at the risk of poor economic conditions.
The FXS Fed Sentiment Index slipped by 0.08 points to 147.47, indicating a minor pullback in perceived hawkishness despite remaining firmly in hawkish territory well above the neutral 100 mark. This suggests that, although the tone was somewhat stronger than the established baseline in the FXS Speechtracker, broader Fed communication still reflects a robust anti-inflation stance even as marginal sentiment cools slightly.
Technical Analysis: AUD/USD holds a negative outlook under the key resistance levels
In the daily chart, AUD/USD extends its slide beneath the 20-day simple moving average and the 100-day simple moving average, which keep the pair firmly capped in a bearish near-term bias. Price now sits just under the lower Bollinger Band, signalling persistent downside pressure, while the Relative Strength Index (14) at 31.9 hovers near oversold territory, hinting that selling momentum is stretched but not yet decisively reversing.
On the topside, initial resistance level emerges at the lower limit of Bollinger Band around 0.6800, followed by the midline of the Bollinger Bands near 0.6960, and the 0.7000 psychological level. Above that, the 100-day SMA at 0.7025 forms a more substantial barrier, with the upper Bollinger Band near 0.7120 marking a higher resistance zone that would need to be reclaimed to soften the broader bearish structure.
On the downside, the January 19 low of 0.6668 acts as an initial support level for the pair. Any follow-through selling below this level could expose the December 18, 2025 low of 0.6592, followed by the November 5, 2025 low of 0.6458.
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