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Australian Dollar extends sharp decline as Fed hike repricing lifts US Dollar

  • AUD/USD extends its sharp decline on Friday and slides toward the 0.7150 area amid broad US Dollar strength.
  • Markets continue to increase bets on a Federal Reserve rate hike following strong US economic data this week.
  • Persistent geopolitical tensions and rising US Treasury yields are also supporting demand for the Greenback.

AUD/USD falls sharply on Friday and trades around 0.7155 at the time of writing, down 0.91% on the day, after hitting its lowest level in more than a week. The pair remains under heavy selling pressure for the second consecutive day amid broad-based US Dollar (USD) strength.

The US Dollar Index (DXY), which tracks the Greenback against a basket of major currencies, climbs toward its highest levels since early April. The move is supported by rising expectations of tighter monetary policy from the Federal Reserve (Fed) after a series of stronger-than-expected economic releases in the United States (US).

The Consumer Price Index (CPI) accelerated to 3.8% YoY in April from 3.3% previously, while the Producer Price Index (PPI) surged 6%. At the same time, Retail Sales increased 0.5% MoM, confirming the resilience of US consumer spending. The US Industrial Production expanded by 0.7% in April, above market expectations for a 0.3% increase. 

According to the CME FedWatch tool, investors are now pricing in nearly a 40% chance of at least one Fed rate hike before the end of the year, compared with less than 15% a week ago. This repricing continues to support US Treasury yields, with the benchmark 10-year yield reaching its highest level in nearly a year.

ING analysts noted that the US Dollar is currently benefiting from “serious short-term momentum,” supported by strong economic data and rising energy prices. The bank believes that a further move in the DXY toward the psychological 100.00 level remains possible unless geopolitical conditions improve.

Persistent tensions surrounding negotiations between the United States and Iran are also fueling risk aversion and supporting demand for safe-haven assets. Concerns linked to the Strait of Hormuz and risks to global energy supply remain in focus for markets.

Against this backdrop, constructive headlines following the meeting between US President Donald Trump and Chinese President Xi Jinping are providing only limited support to the Australian Dollar (AUD), despite the currency’s sensitivity to the Chinese economic outlook.

Meanwhile, the still-hawkish stance of the Reserve Bank of Australia (RBA) is not enough to offset the current strength of the US Dollar, although it could help limit the downside for the Aussie in the near term.

Australian Dollar Price Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.32%0.37%0.17%0.26%0.80%1.04%0.27%
EUR-0.32%0.03%-0.15%-0.08%0.48%0.74%-0.05%
GBP-0.37%-0.03%-0.19%-0.11%0.45%0.69%-0.09%
JPY-0.17%0.15%0.19%0.08%0.61%0.86%0.08%
CAD-0.26%0.08%0.11%-0.08%0.52%0.75%0.00%
AUD-0.80%-0.48%-0.45%-0.61%-0.52%0.25%-0.53%
NZD-1.04%-0.74%-0.69%-0.86%-0.75%-0.25%-0.77%
CHF-0.27%0.05%0.09%-0.08%-0.01%0.53%0.77%

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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

Author

Ghiles Guezout

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.

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