Australian Dollar Gains Amid US Dollar Weakness Ahead of PPI Inflation Data

The Australian Dollar (AUD) extended its gains against the US Dollar (USD) on Thursday, driven by an increase in Australia’s Consumer Inflation Expectations, which rose to 4.6% in February from 4.0% in the previous month. However, growing concerns over a potential global trade war and heightened risk aversion continue to limit AUD’s upside potential. Investors now await the latest release of the US Producer Price Index (PPI) inflation data for further market direction.

US Dollar Faces Pressure Amid Policy Uncertainty

The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of major currencies, remains under pressure, trading near 108.00. Recent US inflation data showed a 3.0% year-over-year rise in the Consumer Price Index (CPI) for January, surpassing expectations of 2.9%. Core CPI, which excludes food and energy, increased to 3.3% from 3.2%, exceeding the forecast of 3.1%. These figures have led to speculation that the Federal Reserve (Fed) may maintain interest rates at their current levels of 4.25%-4.50% for an extended period.

Fed Chair Jerome Powell, in his semi-annual testimony before Congress, indicated that there is no urgency to cut rates, citing continued labor market strength and steady economic growth. Market participants now anticipate a reduced likelihood of a Fed rate cut in June, with probabilities dropping to nearly 30%, as per the CME FedWatch Tool.

Tariff Concerns and Australian Dollar Volatility

Trade tensions have resurfaced after US President Donald Trump announced a 25% tariff expansion on steel and aluminum imports, effectively nullifying previous trade agreements with key allies, including Australia. Trump's trade adviser Peter Navarro criticized Australia, accusing it of "killing the aluminum market," adding further uncertainty to AUD/USD price movements. Australia is actively negotiating exemptions, with Trump previously suggesting he would give "great consideration" to the request.

Reserve Bank of Australia and Interest Rate Outlook

Market expectations for a Reserve Bank of Australia (RBA) interest rate cut are rising, as the central bank currently maintains a 4.35% cash rate. Traders now see a 95% probability of a cut to 4.10% in the upcoming policy meeting, as cooling inflation data fuels expectations for monetary easing.

Technical Analysis: AUD/USD Nears Key Resistance

The AUD/USD pair is hovering around 0.6280, staying above its nine-day and 14-day Exponential Moving Averages (EMAs) on the daily chart. The Relative Strength Index (RSI) remains above 50, indicating bullish momentum. If the pair surpasses the psychological level of 0.6300, it could challenge the eight-week high of 0.6330 reached on January 24. On the downside, support is seen at the nine-day EMA of 0.6273 and the 14-day EMA of 0.6266. A decisive break below these levels could push AUD/USD toward 0.6200.

The Australian Dollar remains resilient against the US Dollar, supported by rising inflation expectations and technical bullish signals. However, lingering US trade policy concerns and Fed rate expectations continue to pose risks. Traders will closely watch the upcoming US PPI inflation data for further clues on market direction. A stronger-than-expected inflation reading could reinforce the Fed’s hawkish stance, potentially strengthening the US Dollar and putting downward pressure on AUD/USD.