AUD/USD moves upward, approaching 0.7240 during the Asian session on Wednesday. The assertive stance of the RBA supports the Australian dollar. Market participants will monitor the upcoming US PPI inflation report and the Trump-Xi summit scheduled for later this week. The AUD/USD pair appreciates to approximately 0.7240 during the Asian trading session on Wednesday. The Australian Dollar shows strength against the US Dollar as the Reserve Bank of Australia adopts a hawkish stance.
The Australian central bank has opted to increase interest rates to 4.35% on May 5, representing its third consecutive hike this year, consistent with market expectations. This tightening cycle continues to offer some support to the Aussie in the near term. “Our economists expect the RBA to remain on hold in a ‘wait-and-see’ mode; however, further domestic fiscal support could increase the likelihood of additional tightening,” said economists. Market participants will pay close attention to the meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing on Thursday and Friday.
On Tuesday, Trump indicated that trade discussions would take precedence during his summit with Chinese President Xi Jinping, while he minimized the focus they would place on the Iran war, according to source. Nonetheless, any favorable outcomes from the discussions between the US and China may enhance the value of the China-proxy Australian Dollar. On the USD’s front, data released by the US Bureau of Labor Statistics on Tuesday indicated that annual inflation in the US, as measured by the change in the Consumer Price Index, increased to 3.8% in April from 3.3% in March. This reading exceeded the market consensus of 3.7% and marked the highest level since May 2023.
Following the hot US inflation data, traders have increased the probability of a Federal Reserve rate hike by the end of the year to approximately 30%, as indicated by the CME FedWatch tool. The upcoming US Producer Price Index report is set to be the focal point later on Wednesday. The headline US PPI is anticipated to demonstrate a growth of 4.9% YoY in April, up from 4.0% in March, while the core PPI is forecasted to reflect an increase of 4.3% YoY in April compared to 3.8% previously.