Australian Dollar advances on weaker US Dollar as markets price in Fed October hold

• AUD/USD gains 0.13% on Tuesday, supported by a modest weakening of the US Dollar.
• US Treasury yields remain close to their highest levels since 2002 despite an intraday pullback.
• Markets favor a Fed hold in October, while expectations for an Australian rate hike remain limited.

AUD/USD gains 0.13% on Tuesday and trades around 0.6980 at the time of writing. The Australian Dollar (AUD) benefits from a modest pullback in the US Dollar (USD), as easing US Treasury yields provide support to the pair.

The benchmark 10-year US Treasury yield trades around 5.29% after falling toward 5.25% earlier in the day. However, it remains close to Monday's peak of 5.349%, its highest level since 2002. US yields remain elevated amid persistent inflation risks, concerns over government debt and fiscal sustainability, and expectations that interest rates will remain high for longer.

Against this backdrop, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, retreats to around 101.87 after reaching a fresh year-to-date high of 102.53 on Monday. The modest decline in Treasury yields is therefore temporarily reducing the appeal of the US Dollar.

On the monetary policy front, weaker-than-expected US data released last week has reduced pressure on the Federal Reserve (Fed) to raise interest rates again at its October 27-28 meeting. Softer Nonfarm Payrolls (NFP) and Personal Consumption Expenditures (PCE) inflation data have notably strengthened expectations that the US central bank will pause its tightening cycle in October.

According to the CME FedWatch tool, markets see roughly a 78% chance that the Fed will leave interest rates unchanged in October. Nevertheless, persistent inflationary pressures and the central bank's commitment to bringing inflation back toward its 2% target keep the possibility of another rate hike in December alive. Investors now await the Federal Open Market Committee (FOMC) Minutes on Wednesday for further clues about the path of US interest rates.

On the Australian side, expectations for further monetary tightening remain relatively modest. According to LSEG data, money markets see around a 20% chance that the Reserve Bank of Australia (RBA) will raise interest rates at its November meeting. The relatively low probability currently limits monetary policy support for the Australian Dollar, leaving AUD/USD primarily sensitive to movements in the US Dollar and US Treasury yields.

AUD/USD technical analysis

In the four-hour chart, AUD/USD trades at 0.6981, keeping a bearish near-term tone as it remains capped beneath both the 100-period simple moving average (SMA) at 0.7045 and the 200-period SMA at 0.7112. The pair is holding just above the horizontal support at 0.6965, while the Relative Strength Index (14) at 56.5 suggests a modest recovery in momentum that has yet to challenge the overhead moving-average barrier.

On the topside, initial resistance is located at 0.7020, followed by the 100-period SMA at 0.7045 and the next horizontal cap at 0.7075. Above there, the 200-period SMA at 0.7112 and the higher resistance at 0.7140 form a broader supply zone. On the downside, a break below 0.6965 would expose the next support level at 0.6900, where buyers may attempt to slow any deeper slide.

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