Australian Dollar slides as US yields jump before pivotal CPI

The Australian Dollar saw a 0.80% decline against the US Dollar on Thursday, after US producer inflation surpassed estimates, signaling a more hawkish Federal Reserve. The AUD/USD pair traded at 0.7159 after peaking at 0.7223. US August PPI data came in at 0.4% MoM, up as expected due to energy price hikes. Core inflation, excluding volatile items, also underestimated estimates, rising 0.2% MoM.

Core PPI rose 5.4% YoY, while the annual PPI headline exceeded forecasts of 5.3% to 5.4%. The CME FedWatch Tool shows a 71% chance of a 0.25% rate hike from the Federal Reserve, based on money markets pricing. US jobless claims released at the same time reinforced Fed Chair Jerome Powell's statement that the labor market is "consistent with full employment," rising by 205K, slightly above forecasts but lower than the previous week's 206K.

US Treasury yields surged, strengthening the Greenback, which ended the day near 99.09 on the US Dollar Index (DXY). The DXY, tracking the buck's performance against six currencies, gained almost 0.30% that day. Crude oil prices surpassed $100 per barrel, climbing over 6%. The Wall Street Journal reported White House advisers told President Trump the conflict with Iran could persist throughout his presidency.

For Australia, Friday's economic calendar remains empty. However, hawkish remarks from Reserve Bank of Australia (RBA) officials have increased trader bets for a 50 basis points hike by the end of 2027 to 4.85%, the highest level since 2008. The PPI reading, coupled with surging energy prices, heightened the likelihood of a 25 basis points increase at the Fed's upcoming meeting.

Money markets anticipate a 70% chance of such a rate hike. Traders are focusing on Friday's CPI report, with August's CPI expected to rise from 0.1% to 0.4% MoM, while the annual rate remains at 3.4%. Core CPI is forecasted to remain steady at 0.2% MoM and decrease slightly from 2.5% to 2.4% YoY. AUD/USD is currently trading at 0.7161, maintaining a bullish bias as it stays above key moving averages and trend-line supports.

The RSI (14) indicates consolidative momentum rather than exhaustion, as it nears the mid-50s while the pair climbs toward resistance. On the upside, immediate resistance lies at the horizontal level around 0.7198, which, if broken, would allow further gains. On the downside, initial demand is expected near 0.7161, with the next substantial support at the clustered SMAs around 0.7062.