AUD/USD weakens to near 0.6540 as US Dollar trades firmly

AUD/USD declines to near 0.6540 as the US Dollar outperforms its peers.
US Treasury Secretary Bessent announced that Washington and China will sign trade deal as soon as next week.
Accelerating consumer and producer inflation in Australia have weighed on RBA dovish bets.

Sagar Dua FXStreet

The AUD/USD pair trades 0.2% lower around 0.6540 during the European trading session on Friday. The Aussie pair faces selling pressure as the US Dollar (USD) demonstrates strength due to multiple tailwinds such as a decline in Federal Reserve (Fed) dovish expectations, and the announcement of a likely trade deal between the United States (US) and China as soon as next week.

At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near an almost three-month high of 99.70 posted on Thursday.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the British Pound.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.54%	1.44%	0.76%	0.00%	-0.05%	0.93%	0.71%
EUR	-0.54%		0.92%	0.30%	-0.53%	-0.51%	0.39%	0.17%
GBP	-1.44%	-0.92%		-0.73%	-1.44%	-1.40%	-0.52%	-0.78%
JPY	-0.76%	-0.30%	0.73%		-0.83%	-0.88%	0.06%	-0.14%
CAD	-0.01%	0.53%	1.44%	0.83%		-0.11%	0.93%	0.67%
AUD	0.05%	0.51%	1.40%	0.88%	0.11%		0.90%	0.63%
NZD	-0.93%	-0.39%	0.52%	-0.06%	-0.93%	-0.90%		-0.26%
CHF	-0.71%	-0.17%	0.78%	0.14%	-0.67%	-0.63%	0.26%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

According to the CME FedWatch tool, the probability of the Fed to cut interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has eased to 72.8% from 91.1% seen a week ago.

Traders trim Fed dovish bets after Chair Jerome Powell stated that the December cut is “far from assured”. Powell clarified that there were “strongly different views” in the meeting, and the takeaway is that “we haven't made a decision about December", Bloomberg reported.

On Thursday, US Treasury Secretary Scott Bessent stated in an interview on Fox Business Network that the “Kuala Lumpur agreement was finished in the middle of the night last night, so I expect we will exchange signatures possibly as soon as next week".

The scenario of the trade deal signing between the US and China is also favorable for the Australian Dollar (AUD), given Australia’s high reliance on its exports to Beijing.

Meanwhile, receding hopes of more interest rate cuts by the Reserve Bank of Australia (RBA) this year are expected to strengthen the Australian Dollar. RBA dovish bets have eased due to accelerating inflationary pressures.

After hotter-than-projected Q3 Consumer Price Index (CPI) report released on Wednesday, inflation at the producer level in the third quarter has also come in higher than expectations. Earlier in the day, the Australian Bureau of Statistics reported that the Producer Price Index (PPI) grew by 1% in July-September period, faster than estimates of 0.8% and the prior reading of 0.7%.

Economic Indicator

Producer Price Index (QoQ)

The Producer Price Index released by the Australian Bureau of Statistics measures the average changes in prices in the Australian markets by producers of commodities. Changes in the PPI are widely followed as an indicator of commodity inflation. A high reading is seen as positive (or bullish) for the AUD, whereas a low reading is seen as negative (or bearish).

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