Australian Dollar edges lower below 0.7050 as US PPI lifts US Dollar

The AUD/USD pair loses momentum to around 0.7030 during the Asian trading hours on Friday. The US Dollar (USD) strengthens against the Australian Dollar (AUD) after US wholesale prices rose more than expected in May. The preliminary reading of the Michigan Consumer Sentiment Index for June will be published later in the day. 

US producer prices increased more than expected in May, leading to the highest level since November 2022, the US Bureau of Labor Statistics showed on Thursday. The US Producer Price Index (PPI) climbed 6.5% YoY in May, compared to 5.7% in April, hotter than the market expectation of 6.4%. Meanwhile, the PPI rose by 1.1% MoM in May, above the market consensus of 0.7%.

This report provided more evidence that inflation pressures were building up as the Middle East conflict boosted the cost of energy products. Markets are now pricing in a 43% probability of a quarter-point rate hike in December, up from just about 14% a month ago, according to the CME FedWatch tool.

The Reserve Bank of Australia (RBA) will announce its next interest rate decision next Tuesday. Fading expectations of additional interest rate hikes by the Australian central bank might weigh on the Aussie. All four of Australia's Big Four banks expected the RBA to keep rates on hold at its upcoming meeting, with Westpac forecasting a 25-basis-point increase in August.