Australian Dollar extends decline ahead of Fed's decision

• AUD/USD falls around 0.4% and trades near 0.6945 after Australian inflation undershot expectations.
• Softer headline and underlying inflation sharply reduced expectations of another RBA rate increase in August.
• Investors await the Federal Reserve decision as renewed US-Iran attacks and surging oil prices support demand for the US Dollar.

AUD/USD trades 0.4% lower near the 0.6945 area on Wednesday, extending its recent decline as the Australian Dollar (AUD) weakens following softer-than-expected domestic inflation data.

Australia’s Consumer Price Index (CPI) declined 0.1% MoM in June, compared with expectations for a 0.2% increase. Annual inflation eased to 3.8% from 4.0%, also below the market forecast of 4.0%.

The Trimmed Mean CPI, the Reserve Bank of Australia’s (RBA) preferred measure of underlying inflation, rose 0.3% MoM, below expectations and the previous reading of 0.4%. The annual underlying rate remained unchanged at 3.6%.

Attention now turns to the Federal Reserve’s (Fed) monetary policy announcement later on Wednesday. The Fed is generally expected to leave the fed funds rate unchanged within the 3.50%–3.75% range, although markets assign roughly a one-in-three probability to a 25-basis-point increase. Investors will closely monitor Chair Kevin Warsh’s press conference for signals about whether persistent inflation could justify tighter policy later in the year.

Geopolitical developments are also limiting demand for the risk-sensitive Australian Dollar. The United States and Iran have resumed attacks in the Gulf, contributing to a sharp recovery in Crude Oil prices and renewed concerns about energy-driven inflation. The escalation supports safe-haven demand for the Greenback and adds uncertainty ahead of the Fed decision.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6947, keeping a bearish near-term tone as it holds beneath both the 20-period and 100-period Simple Moving Averages (SMAs) clustered just under 0.6980. The pair is also capped by nearby horizontal resistance at 0.6951 and 0.6960, while the Relative Strength Index (RSI) hovering in the mid-30s hints at persistent downside pressure rather than a sustained recovery.

On the downside, initial support emerges at 0.6939, with a break exposing the next horizontal floor at 0.6935. On the topside, a move above 0.6951 would open the way toward 0.6960, while further gains would need to clear the 100-period SMA around 0.6972 and the 20-period SMA near 0.6977 to ease the current bearish bias.

(The technical analysis of this story was written with the help of an AI tool. Know more.)