Australian Dollar struggles for direction against US Dollar with US PPI in focus
- The Australian Dollar remains sideways at around 0.7215 against the US Dollar.
- Investors keenly await the US PPI and CPI data for August.
- The RBA is expected to raise interest rates again this year.
The Australian Dollar (AUD) trades in a tight range at around 0.7215 against the US Dollar (USD) during the European trading session on Thursday. The Aussie pair struggles for direction as investors await the United States (US) Producer Price Index (PPI) data for August, which will be published at 12:30 GMT.
Market participants will pay close attention to the US producer inflation data to get fresh cues regarding the Federal Reserve’s (Fed) monetary policy outlook.
According to estimates, the US headline PPI grew at a faster pace of 5.3% Year-on-Year (YoY) from 4.7% in July. The core PPI – which excludes volatile food and energy items – rose by 4.6% YoY, stronger than the previous reading of 4.2%.
This week, investors will also focus on the US Consumer Price Index (CPI) data for August, which will be published on Friday. Signs of price pressures accelerating on both the consumer and wholesale level would prompt expectations of Fed interest rate hikes in the near term.
Meanwhile, the latest Reuters poll has shown that the majority of economists surveyed see the Federal Funds Rate remaining at its current level by the year-end.
On the Aussie front, market participants are becoming increasingly confident that the Reserve Bank of Australia (RBA) will again this year, following warnings of upside inflation risks from Deputy Governor Andrew Hauser in an interview by the ABC on Tuesday.
RBA keeps hawkish bias as Hauser flags persistent inflation risks
Analysts at Commerzbank highlight that in Asia, the RBA has maintained a distinctly hawkish tone, signalling it "stands ready to raise rates again if needed," with Deputy Governor Andrew Hauser stressing that upside risks to inflation remain "a constant source of concern." Hauser underscored the policy dilemma facing the central bank, remarking, "The question now, frankly, for us is have we done enough or is more needed," reinforcing the message that further tightening remains firmly on the table if price pressures fail to moderate as expected.
AUD/USD Technical Analysis
In the daily chart, AUD/USD trades at 0.7215, maintaining a bullish near-term bias as it holds above the 20-day exponential moving average (EMA) at 0.7163. The pair is extending its advance from recent lows, while the Relative Strength Index (RSI) around 67 stays in positive territory but shy of overbought, hinting that upside momentum remains firm, though a pause cannot be ruled out.
On the downside, immediate support is seen at the 20-day EMA near 0.7163, where buyers are likely to defend the ongoing uptrend if price pulls back. A daily close below this dynamic floor would ease the bullish pressure and open the door to a deeper correction, whereas holding above it keeps the focus on further gains toward higher highs in the sessions ahead.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.