The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Friday, trading near 0.7070, up from Thursday’s lows of 0.7045, as the US Dollar lost momentum ahead of the release of July’s US Retail Sales figures [1]. This move was supported by hawkish remarks from Reserve Bank of Australia’s Assistant Governor Chris Kent, who stated that interest rates are restrictive and working but inflationary risks remain high, leaving the door open for further monetary tightening. RBA Governor Michelle Bullock also indicated that a rate hike remains a possibility, boosting expectations for a tightening move at the September meeting [1].
Meanwhile, US stock futures remained little changed, with Dow Jones futures around 53,910, S&P 500 futures near 7,820, and Nasdaq 100 futures slightly lower by 0.09% at 30,160, as traders adopted a cautious stance ahead of the US Retail Sales data release [2]. The market consensus anticipates a 0.1% increase in retail consumption for July, following a 0.2% gain in June [1]. The University of Michigan's Consumer Sentiment Survey is also expected to show a mild deterioration to 54.5 in August from 55.2 in July [1].
Recent US inflation data has contributed to a shift in expectations regarding the Federal Reserve’s monetary policy. The US Producer Price Index (PPI) for July was flat, below the expected 0.2% growth, and followed a revised 0.1% decline in June. Core PPI rose 0.2%, slightly below the 0.3% forecast, while headline PPI increased 4.7% year-over-year and core PPI climbed 4.2% [2]. These softer inflation readings, along with a benign Consumer Price Index (CPI) report and a decline in July's Nonfarm Payrolls, have reduced market expectations for a Fed rate hike in September. According to the CME FedWatch Tool, the probability of a September rate hike has dropped to 32.4% from 40.6% after the latest inflation numbers [2].
Despite the cautious tone in futures, the previous session saw major US equity indexes advance, with the S&P 500 gaining 0.65% and the Nasdaq Composite adding 0.81%, both positioned for their third consecutive weekly gain. The Dow Jones Industrial Average rose by 70 points but remains on track to finish the week lower [2]. Strategists at Deutsche Bank noted that the rally was supported by gains in the Magnificent 7 (+1.20%) and broader tech stocks, with the equal-weighted S&P 500 outperforming and hitting a new high, indicating that market gains are broadening beyond mega-cap stocks [2].
CONCLUSION
Markets are in a holding pattern ahead of the US Retail Sales report, with the US Dollar weakening and stock futures steady as cooling inflation data tempers expectations for further Fed tightening. The Australian Dollar is benefiting from hawkish RBA commentary, while US equities remain supported by broad-based gains in technology and other sectors. Investors are closely watching upcoming data for further direction.