Australian Dollar softens to near 0.7150, US CPI inflation data looms

• AUD/USD loses ground to near 0.7155 in Friday’s Asian session.
• Traders raise their bets on a US September rate hike following hotter US PPI data, supporting the US Dollar.
• RBA’s hawkish comments have fueled expectations for RBA September rate increase.

The AUD/USD pair edges lower to around 0.7155 during the early Asian session on Friday. The US Dollar strengthens against the Australian Dollar (AUD) following signs of hotter inflation in the United States (US). The release of the US August Consumer Price Index (CPI) inflation data will be in the spotlight later on Friday.

The US Producer Price Index (PPI), a measure of wholesale prices and a gauge of pipeline cost pressures, rose 5.4% YoY in August, versus 4.8% prior, according to the Bureau of Labor Statistics (BLS) on Thursday. This figure came in above the market consensus of 5.3%. 

On a monthly basis, the headline PPI increased 0.4% in August, in line with market expectations. The core PPI was up 0.2%, slightly softer than the forecast.

Following Thursday’s hotter Producer Price Index (PPI) release, traders raised the odds of a quarter-percentage-point increase to more than 73%, according to the CME FedWatch tool.

Traders will take more cues from the US CPI data later in the day. This report will be the last piece of the inflation puzzle the Federal Reserve (Fed) will get before making its decision on interest rates next week. The headline CPI is expected to show a rise of 3.4% in August, while the core CPI is projected to show an increase of 2.4% during the same period.

Nonetheless, a hawkish tone from the Reserve Bank of Australia (RBA) might help limit the Aussie’s losses. RBA Assistant Governor Sarah Hunter said on Tuesday that the central bank may need to raise interest rates again if inflation proves more persistent than expected, keeping alive the prospect of another hike at its September meeting. 

Meanwhile, RBA Deputy Governor Andrew Hauser stated that inflation is “one big problem” Australia’s economy is still facing, adding that the central bank stands ready to raise interest rates further if it believes it is needed.

Markets are now pricing in nearly a 72% chance that the RBA will raise the Official Cash Rate (OCR) to 4.60% at the next RBA Board meeting, according to RBA Rate Tracker. 

RBA hawkish turn aligns with US policy preferences

Rabobank points out that the RBA’s policy stance has turned more hawkish after “Hauser [gave] a hawkish speech, which has markets thinking of hikes this month and in November.” The bank adds that this prospective tightening path is “very much what the US Treasury would like to see – plus a lot more action on non-housing parts of the economy,” underscoring the alignment between Australian policy signals and US official preferences for firmer restraint beyond the housing sector.

Technical Analysis: AUD/USD keeps a positive tone above the 100-day SMA

In the daily chart, AUD/USD holds a mild bullish bias as it trades above the 100-day Simple Moving Average (SMA), with the recent pullback still contained within the Bollinger Bands envelope. Price is hovering just under the Bollinger 20-period SMA, which acts as immediate resistance, while the Relative Strength Index (14) at 53.7 stays in neutral-to-positive territory, hinting at steady but not overextended upside momentum.

On the topside, initial resistance is located at the Bollinger 20-period SMA near 0.7165, followed by a stronger barrier at the upper boundary of Bollinger Band around 0.7238. On the downside, the first line of support is the nearby price floor at 0.7158, ahead of a more meaningful cushion at the lower limit of Bollinger Band near 0.7092, with the 100-day SMA at 0.7080 reinforcing that broader demand zone while above it the constructive tone is likely to persist.

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