Why is the Australian Dollar firming as the USD weakens broadly and traders turn to US inflation?

Broad US Dollar weakness lifts the Australian Dollar 0.75% on Monday.
October inflation data from China show a sharper-than-forecast slowdown in consumer prices, but an upside surprise in producer prices.
With key inflation releases due, robust US jobs figures strengthen expectations for a December interest rate hike.

Broad selling in the US Dollar (USD) fuels a sharp recovery in AUD/USD on Monday, with the pair trading near 0.6915 at the time of writing, up 0.75% for the day. The Australian Dollar (AUD) advances despite mixed Chinese economic readings and heightened expectations of additional monetary tightening in the United States (US).

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Consumer inflation in China, Australia's biggest trading partner, eased more than anticipated in October. The latest Consumer Price Index (CPI) reading showed a 0.7% YoY rise, below September's 0.9% and the market forecast of 0.8%. Consumer prices were flat month-on-month, matching forecasts after a 0.2% rise in the preceding month. By contrast, October's Producer Price Index (PPI) rose 5.7% YoY, accelerating from 5% in September and surpassing expectations of 5.3%. Despite softer consumer inflation, the larger-than-forecast rise points to continuing price pressures at the production level.

Close trading links make China's economic prospects especially significant for the Australian Dollar, and the latest readings offer a mixed assessment of that economy. Nevertheless, Monday's market mood appears to be driven primarily by US Dollar weakness, helping AUD/USD sustain its upward momentum.

Even as expectations build for a Federal Reserve (Fed) interest rate hike, the US Dollar Index (DXY) is down 0.44% on Monday at around 101.85. The index tracks the Greenback against a basket of six major currencies.

A nearly 80% probability of a 25-basis-point (bps) increase at the Fed's December meeting is now priced into markets, according to the CME FedWatch tool. Behind this pricing are the US economy's resilience and the Fed's commitment to returning inflation sustainably towards its 2% target.

Fresh US labour market data lend further weight to those expectations. October Nonfarm Payrolls (NFP) rose by 165K, well above the projected 65K and September's 60K reading. The Unemployment Rate, meanwhile, fell to 4.1%, against a forecast of 4.2%.

Tuesday's US Consumer Price Index report is the next focus for investors, with the Producer Price Index release following on Friday. Should inflation exceed forecasts, expectations for a December rate hike could strengthen, helping the US Dollar recover and potentially putting pressure on AUD/USD.

Energy market concerns ease as US President Donald Trump downplays the prospect of fresh strikes against Iran and Qatar's Prime Minister travels to Washington for talks intended to end the conflict. Against these geopolitical developments, West Texas Intermediate (WTI) Oil is down more than 3% on Monday, trading near $86.85 at the time of press.

US Dollar movements and the forthcoming US inflation readings will therefore be the main drivers of AUD/USD's near-term path. Those data could alter market expectations for the Fed's next monetary policy decision.

How Is the Australian Dollar Performing Today?

Today's percentage moves in the Australian Dollar (AUD) against the major currencies listed are set out below. Its strongest performance was against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.59%	-0.56%	-0.35%	0.02%	-0.74%	-1.42%	0.06%
EUR	0.59%		0.03%	0.28%	0.60%	-0.15%	-0.84%	0.65%
GBP	0.56%	-0.03%		0.23%	0.57%	-0.18%	-0.87%	0.62%
JPY	0.35%	-0.28%	-0.23%		0.34%	-0.41%	-1.10%	0.39%
CAD	-0.02%	-0.60%	-0.57%	-0.34%		-0.76%	-1.44%	0.04%
AUD	0.74%	0.15%	0.18%	0.41%	0.76%		-0.69%	0.80%
NZD	1.42%	0.84%	0.87%	1.10%	1.44%	0.69%		1.50%
CHF	-0.06%	-0.65%	-0.62%	-0.39%	-0.04%	-0.80%	-1.50%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the Australian Dollar on the left and following its row across to the US Dollar gives the percentage change for AUD (base)/USD (quote) in the corresponding cell.