Aussie dollar climbs as traders await key US inflation data

Daily Currency Update

The Australian dollar (AUD) gained ground on Thursday, with AUD/USD rising around 0.40% to trade near 0.6510, supported by a rebound in risk appetite and a renewed bid for commodity-linked currencies. The move comes as investors cautiously position themselves ahead of Friday’s U.S. Consumer Price Index (CPI) release for September — a data point that could have significant implications for global markets and the Federal Reserve’s policy outlook. Despite a backdrop of lingering U.S.–China trade tensions, the Aussie has been punching above its weight this week. In theory, escalating friction between Washington and Beijing should be bad news for the AUD, given Australia’s deep economic ties to China. China remains Australia’s largest trading partner, absorbing a significant share of its iron ore, coal and agricultural exports. When relations between the U.S. and China sour, global trade sentiment often dips, taking commodity prices and the Aussie down with it. Yet this time, the currency seems to be defying expectations. Instead of focusing solely on trade headlines, markets appear to be responding more to shifts in global risk sentiment and commodity prices. Iron ore and copper, two key Australian exports, have held relatively steady, while oil prices have eased from recent highs, providing some relief for risk assets. This has encouraged traders to rotate back into higher-yielding currencies like the AUD. Another tailwind for the Aussie is the growing belief that U.S. interest rates may have already peaked. Investors are increasingly convinced that the Federal Reserve is done with its aggressive tightening cycle, especially as signs of cooling inflation and slower growth emerge in the U.S. economy. A softer CPI reading on Friday would likely reinforce that narrative, putting pressure on the U.S. dollar and boosting higher-beta currencies such as the AUD, NZD, and CAD. On the domestic front, the Reserve Bank of Australia (RBA) remains in a delicate position. Inflation at home has moderated from its 2022 highs but is still running above the RBA’s 2%–3% target band. While the central bank has signaled a willingness to keep rates on hold for now, policymakers have also left the door open to further tightening if inflation proves sticky. That lingering uncertainty gives the Aussie some policy-driven support, as markets weigh the RBA’s next steps against the Fed’s likely pause. Still, it’s not all smooth sailing for the Australian dollar. Geopolitical risks remain elevated, and the global growth outlook is far from certain. Any escalation in U.S.–China tensions or signs of a sharper slowdown in China’s industrial activity could quickly dent sentiment. Moreover, if U.S. inflation surprises on the upside, it could revive expectations for another Fed hike, reigniting demand for the U.S. dollar and pushing AUD/USD lower. For now, though, the Aussie is enjoying a well-earned rebound. With commodity prices stable, risk sentiment improving, and traders positioning ahead of the U.S. inflation print, the path of least resistance for AUD/USD appears tilted to the upside, at least in the short term.