The AUD/USD pair gives up its early upside and drops 0.3% toward 0.6500 in Friday’s European session as the US Dollar (USD) stages a sharp recovery. The US Dollar Index (DXY) rebounds from intraday losses and climbs toward 99.40, pressuring the Aussie lower.

The USD strengthens as traders grow increasingly uncertain about the likelihood of a Federal Reserve (Fed) rate cut in December. According to the CME FedWatch Tool, the probability of a 25 bps cut has slipped to 50.7%, down from 63% the previous day. This shift follows a series of cautious remarks from Fed policymakers, who emphasize the need to maintain restrictive policy until inflation moves closer to the 2% target. Cleveland Fed President Beth Hammack reiterated Thursday that restrictive conditions remain necessary to cool price pressures.

Despite USD strength, the Australian Dollar retains some underlying support. Expectations for the Reserve Bank of Australia (RBA) to cut rates again this year have faded, thanks to robust October employment data and a hotter-than-expected Q3 Consumer Price Index (CPI) reading. This reduces the likelihood of further policy easing by the RBA and limits deeper downside for the Aussie.