The AUD/USD pair trades lower near 0.7040 on Friday, declining around 0.46% on the day after reaching a multi-year peak of 0.7187 earlier in the week. The retreat comes as the US Dollar (USD) strengthens and risk appetite weakens across global financial markets.
The Greenback gained support after the release of several key US economic indicators. Inflation, measured by the Personal Consumption Expenditures Price Index—the preferred measure of the Federal Reserve—eased slightly to 2.8% year-over-year in January from 2.9% in December, coming in below market expectations. On a monthly basis, the index rose by 0.3%, in line with forecasts. Meanwhile, the core PCE index, which excludes food and energy prices, climbed 3.1% annually, matching analysts’ projections.
Additional US data indicated signs of slowing economic momentum. The US fourth-quarter Gross Domestic Product growth was sharply revised down to 0.7% from earlier estimates of 1.4%, suggesting weaker overall economic activity than initially reported.
Despite these mixed signals, the US Dollar continues to benefit from rising Treasury yields and renewed concerns about inflation. The US Dollar Index has climbed above the 100 mark as investors reassess expectations for future US monetary policy.
Meanwhile, geopolitical tensions in the Middle East are also shaping market sentiment. Growing instability around the Strait of Hormuz has heightened fears of potential disruptions in global energy supply. Brent crude prices remain near $100 per barrel, while West Texas Intermediate (WTI) trades around $95, fueling expectations that inflationary pressures may remain elevated.
As a result, markets have scaled back expectations for interest rate cuts by the Federal Reserve this year. Analysts at MUFG estimate that every $10 increase in oil prices could raise US inflation by roughly 0.2 percentage points, potentially delaying the Fed’s easing cycle.
In Australia, inflation expectations are also rising. According to the Melbourne Institute survey, consumer inflation expectations climbed to 5.2% in March, marking the highest level since July 2023. This development strengthens speculation that the Reserve Bank of Australia could consider another interest rate hike, with markets pricing in a possible move at the upcoming March 17 meeting.
Nevertheless, despite tightening expectations in Australia, the stronger US Dollar and growing risk aversion continue to weigh on AUD/USD in the near term.
Trade Idea:
Sell AUD/USD below 0.7050 with targets near 0.6950. Stronger US Dollar momentum and risk-off sentiment may keep the pair under pressure in the short term.