The Australian dollar (AUD) gained ground against the US dollar on Friday, marking its sixth consecutive day of increases. The currency’s rise is largely attributed to a surprising uptick in inflation, which has shifted expectations regarding potential easing by the Reserve Bank of Australia (RBA) and raised the likelihood of additional interest rate hikes. Recent data shows that consumer prices have climbed for four straight months and remain above the RBA’s target range of 2-3%.
The RBA is expected to maintain the official cash rate (OCR) at 3.6% during December, as inflation continues to exceed its target. Although the unemployment rate has experienced a slight increase, officials noted that the job market remains robust and is expected to sustain this strength. As of November 27, the ASX 30-day interbank cash rate futures were trading at 96.41 for the December 2025 contract, indicating a 6% probability that the RBA may reduce the cash rate from 3.60% to 3.35% in its upcoming board meeting.
On Friday, the RBA also reported a 0.7% month-on-month increase in private sector credit for October, surpassing previous expectations of a 0.6% rise. The annual growth rate ticked up slightly from the revised 7.2% to 7.3%.
Support for the AUD/USD pair has been bolstered as the US dollar (USD) faces challenges amid increasing expectations for a December rate cut by the US Federal Reserve. Traders are speculating that there could be three additional rate cuts by the end of 2026, especially after reports suggested that White House National Economic Council Director Kevin Hassett is a leading candidate for the next Fed chair. Many traders believe that Hassett shares U.S. President Donald Trump’s inclination towards lower interest rates.
US dollar faces pressure as Fed rate cut expectations rise
- The US dollar index (DXY), which measures the dollar against six major currencies, has been struggling, hovering around 99.50 at the moment.
- Currently, the markets are factoring in an over 87% likelihood that the Fed will cut the benchmark overnight borrowing rate by 25 basis points (bps) in December, a steep rise from just 39% a week earlier, according to the CME FedWatch tool.
- The U.S. Department of Labor revealed on Wednesday that 216,000 new jobless claims were filed for the week ending November 22, a drop of 6,000 from the prior week’s revised count, which surpassed market predictions of 225,000. The four-week moving average also decreased by 1,000, bringing it to 223,750.
- The U.S. producer price index (PPI) remained stable at 2.7% year-on-year in September, aligning with expectations and August figures, indicating a stabilization in inflationary pressures. Core PPI, however, fell to 2.6% from 2.9%, below the anticipated 2.7%.
- Retail sales in the U.S. increased by 0.2% month-on-month in September, a slowdown compared to the 0.6% rise seen in August. This suggests that consumer spending is becoming more cautious. Meanwhile, the Conference Board documented a significant decline in household sentiment, with the consumer confidence index dropping 6.8 points to 88.7 in November from 95.5 in October.
- On Monday, Fed Director Christopher Waller mentioned to FOX Business that the key concern lies in a weakening labor market and remarked that inflation is “not a big problem,” especially with recent employment softening. He also stated that the September payroll numbers could likely be revised downward, characterizing concentrated hiring as “not a good sign” and suggesting support for short-term interest rate cuts.
- Private capital investment increased by 6.4% in the third quarter, according to the Australian Bureau of Statistics (ABS), a significant jump from the previous quarter’s 0.2% growth, exceeding the expected 0.5% rise. Additionally, the ABS released its first “complete” monthly consumer price index (CPI), showing a 3.8% year-on-year (YoY) rise in October, surpassing market expectations of a 3.6% increase and the prior 3.5% figure.
- For November, Australia’s preliminary S&P Global Manufacturing Purchasing Managers Index (PMI) registered at 51.6, up from 49.7. Conversely, the services PMI in November rose slightly to 52.7 from the previous month’s 52.5, while the overall PMI increased to 52.6 from 52.1.
- Last week, the RBA released minutes from its November monetary policy meeting, showing that board members indicated a more balanced policy approach. They noted that if future data proves stronger than anticipated, the cash rate could remain unchanged for an extended period.
Short-term bullish momentum strengthens; Australian dollar approaches the 0.6550 mark
On Friday, the AUD/USD pair traded around 0.6540. Technical analysis indicates the pair is operating within a rectangular consolidation zone, with a neutral bias present. The pair sits above the 9-day exponential moving average (EMA), suggesting an increase in near-term bullish momentum.
The pair may aim for a monthly high of 0.6580, subsequently targeting the psychological level of 0.6600. If it surpasses this resistance confluence, it could explore the upper boundary of the rectangle around 0.6630.
Conversely, on the downside, the AUD/USD pair is likely to find initial support at the 9-day EMA set at 0.6504, aligning with the psychological level of 0.6500. A dip below this crucial support could push the AUD/USD pair to test the lower threshold near 0.6420, which aligns with the five-month low of 0.6414 reached on August 21st.
