Australian Dollar underperforms amid risk-off mood

• The Australian Dollar comes under pressure due to risk-off market mood.
• A significant increase in hawkish Fed bets has dampened the appeal of riskier assets.
• Sticky US CPI report for August boosts hawkish Fed expectations.

The Australian Dollar (AUD) is down against its major currency peers, trading 0.45% lower at around 0.7135 against the US Dollar (USD) during the European trading session on Monday. The Australian currency tumbles as market sentiment turns risk-averse due to a further escalation in Federal Reserve (Fed) interest rate hike expectations.

At press time, S&P 500 futures are down 0.66% to near 7,600, reflecting a weak risk-appetite of investors.

FOMC set for first hike since 2023 as market eyes Warsh’s guidance

Strategists at Brown Brothers Harriman (BBH) expect the FOMC to break its streak of five consecutive holds, noting that “the FOMC is poised to deliver a 25bps hike to a target range of 3.75%-4.00% on Wednesday after five straight holds, marking its first hike since July 2023.” BBH argues that “persistently above target US inflation and a stable labor market justify a rate increase,” and points out that positioning is already heavily skewed toward such an outcome, with “Fed funds futures price in roughly 90% odds of a hike this week.” Against that backdrop, BBH stresses that “the vote split, updated Summary of Economic Projections, and Fed Chair Kevin Warsh’s press conference will guide the market reaction,” as investors parse the decision for signals on the policy path ahead.

A sharp repricing of Fed’s interest rate expectations has also resulted in a significant jump in the US Dollar. As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.4% higher to near 99.50.

On the domestic front, investors await Reserve Bank of Australia (RBA) Governor Michele Bullock’s speech before the House of Representatives Standing Committee on Economics in Canberra on Friday.

The comments from RBA’s Bullock are expected to have a significant impact on expectations for Australia’s interest rate outlook.

AUD/USD Technical Analysis

In the daily chart, AUD/USD trades at 0.7134, holding a modest bearish near-term bias as spot remains under the 20-period exponential moving average (EMA) at 0.7156. The pair has slipped back below this short-term trend gauge, suggesting a loss of upside traction, while the Relative Strength Index (RSI) at 48.8 has retreated toward neutral territory, hinting at fading bullish momentum rather than outright oversold conditions.

On the topside, initial resistance is aligned with the 20-day EMA at 0.7156, which caps recovery attempts and would need to be reclaimed to reopen a more constructive tone toward recent highs. On the downside, the absence of nearby moving average or Fibonacci supports leaves price action exposed to further slippage, with traders likely to look to prior swing lows as the next structural floors if the pair continues to retreat beneath the current level.

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