The Australian Dollar (AUD) slipped against the U.S. Dollar (USD) on Friday, with AUD/USD down 0.2% to 0.6540 during the European session, as a firmer greenback and shifting monetary expectations weighed on the pair.
The U.S. Dollar Index (DXY) held close to a three-month high of 99.70, supported by easing bets on Federal Reserve rate cuts and optimism surrounding an imminent U.S.-China trade agreement.
U.S. Treasury Secretary Scott Bessent confirmed late Thursday that the “Kuala Lumpur agreement” had been finalized, signaling that Washington and Beijing could sign a trade deal as early as next week. The announcement boosted demand for the dollar, traditionally viewed as a global safe haven during trade transitions.
Meanwhile, Fed Chair Jerome Powell’s comments earlier in the week curbed market expectations of a December rate cut. Powell said that the decision was “far from assured,” underscoring divisions among policymakers. According to the CME FedWatch Tool, the probability of a 25-basis-point cut in December has dropped to 72.8% from 91.1% a week earlier.
“The market had priced in a dovish Fed too early,” said one analyst. “Powell’s tone recalibrated expectations and gave the dollar renewed momentum.”
Australia’s Inflation Eases RBA Dovish Bets
While the stronger U.S. dollar has driven AUD/USD lower, domestic inflation pressures in Australia have limited the pair’s downside. Fresh data from the Australian Bureau of Statistics showed the Producer Price Index (PPI) rose 1% in Q3, exceeding both expectations of 0.8% and the previous reading of 0.7%.
This follows a hotter-than-expected Consumer Price Index (CPI) report earlier in the week, which signaled persistent price pressures. The data prompted traders to scale back bets on further Reserve Bank of Australia (RBA) rate cuts this year.
However, the broader narrative remains mixed. A potential U.S.-China trade deal could bolster Australia’s export outlook, given its heavy reliance on Chinese demand for raw materials and commodities.
Key influences on AUD/USD:
- U.S. Dollar Index near 99.70 amid firmer Fed tone
- Australia’s CPI and PPI exceed expectations
- Optimism over upcoming U.S.-China trade signing
Market Outlook for AUD/USD
Analysts expect the AUD/USD pair to remain range-bound in the near term, balancing Fed-driven U.S. dollar strength against Australia’s improving inflation backdrop. The pair faces resistance at 0.6580 and support near 0.6520, with sentiment likely dictated by upcoming U.S. employment data and RBA policy commentary.
In the medium term, if the Fed holds steady while Australian inflation remains elevated, the Aussie could find room to recover. Conversely, renewed global trade volatility could send the pair below 0.6500.
As the week closes, traders will be closely watching whether the U.S.-China trade deal materializes and how it shapes broader risk appetite across the Asia-Pacific markets.