Aussie dollar hits 10-month high amid buoyant market sentiment and rising Australian inflation expectations
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Daily Currency Update
The Australian dollar (AUD) rallied to a fresh 10-month high against the US dollar (USD) on Friday, with the AUD/USD pair reaching levels near 0.6670 during the European trading session. The surge in the Aussie comes as risk-sensitive currencies outperform, buoyed by an improving global risk appetite and evolving central bank expectations. Market sentiment has turned decisively optimistic ahead of the Federal Reserve’s monetary policy decision scheduled for Wednesday. Investors are increasingly confident that the Fed is nearing the end of its tightening cycle, with growing bets on a rate cut either at the upcoming meeting or later in the year. These dovish expectations have weighed on the US dollar and provided a broad-based lift to higher-yielding currencies like the AUD. Adding to the Australian dollar’s strength are domestic economic developments that could influence the Reserve Bank of Australia's (RBA) policy stance. Notably, the Melbourne Institute’s Consumer Inflation Expectations index showed a sharp rise in September, climbing to 4.7% on an annualized basis from 3.9% in the previous month. The significant uptick suggests that inflation expectations among consumers are becoming less anchored, a development that could complicate the RBA’s policy calculus. If inflation expectations continue to drift higher, markets may begin to reassess the likelihood of near-term rate cuts by the RBA. For now, however, most analysts maintain that the central bank will keep rates unchanged at its upcoming meeting on September 30. “We continue to expect just one more cut in November but no change at the RBA’s September meeting,” analysts noted, highlighting a cautious approach amid lingering inflation risks. As both central banks navigate diverging economic signals, the AUD/USD pair may remain sensitive to incoming data and forward guidance. For now, the balance of risks appears to favor the Aussie, supported by both global risk appetite and firming domestic inflation expectations.Key Movers
The US dollar rebounded modestly from earlier lows on Friday but continues to face resistance near the 98.00 level, keeping price action confined within the previous day’s range. This sideways movement preserves the broader bearish trend that has dominated recent sessions, as market participants weigh mixed economic signals and await further direction. Friday’s inflation report for August showed a slightly hotter-than-expected headline Consumer Price Index (CPI) reading, rising 0.4% month-over-month versus the consensus forecast of 0.3%. The core CPI, which excludes volatile food and energy prices, came in line with expectations at 0.3% m/m. On an annual basis, headline CPI increased 2.9%, marginally exceeding the consensus estimate of 2.8%. These figures suggest that inflation pressures remain persistent but contained, complicating the Federal Reserve’s outlook. However, the labor market data delivered a more notable surprise. Initial unemployment claims surged to 263,000 last week, well above the forecasted 235,000. This uptick reinforces signs of a cooling US jobs market following last week’s disappointing Nonfarm Payrolls report, which showed weaker-than-expected employment growth. The rise in claims highlights potential softening in labor demand, adding nuance to the inflation story and fueling speculation about the Fed’s next moves. Together, the inflation and labor data create a complex backdrop for the US dollar. While inflation remains stubborn enough to discourage aggressive easing by the Fed, the weakening jobs market signals a possible slowdown in economic momentum. As a result, traders appear cautious, limiting the dollar’s upside and keeping it range-bound for now. Looking ahead, market participants will closely monitor upcoming economic releases and Federal Reserve commentary for clearer signals on monetary policy direction. Until then, the US dollar’s movement is likely to remain constrained below key resistance levels, with the broader bearish trend intact amid lingering uncertainties.Expected Ranges
- AUD/USD: 0.6550 - 0.6750 ▲
- AUD/EUR: 0.5550 - 0.5750 ▲
- GBP/AUD: 2.0400 - 2.0600 ▼
- AUD/NZD: 1.1000 - 1.1200 ▲
- AUD/CAD: 0.9100 - 0.9300 ▲