AUD/USD Pairs Reverses as US Inflation Data Triggers Hawkish Fed Bets
The Australian Dollar experienced a significant decline against the US Dollar on Thursday, following a sharp increase in US producer inflation. The AUD/USD pair reversed its earlier gains and ended the session with a 0.80% loss, trading at 0.7159 after reaching a peak of 0.7223.
The surge in US producer inflation was driven by energy prices, which rose sharply. The annual PPI headline exceeded forecasts, rising to 5.4% from 5.3%. This increase has led investors to bet on a more hawkish Federal Reserve, with the CME FedWatch Tool indicating a nearly 70% chance of a 0.25% interest rate hike.
Meanwhile, US Treasury yields rose sharply in response to the inflation data and the escalating US-Iran conflict. Brent and WTI crude oil benchmarks broke above the $100-per-barrel barrier, with prices rising over 6%. The Wall Street Journal reported that White House advisers have told President Trump that the conflict could drag on for the rest of his term.
As investors await Friday's CPI report, which is expected to show a rise in August's inflation rate from 0.1% to 0.4% MoM, the AUD/USD pair faces significant uncertainty. If the CPI data shows higher-than-expected inflation, it could strengthen the case for a September interest rate hike.