Australian Dollar outperforms as hot CPI data lifts hawkish RBA expectations

• Australian Dollar gains as the likelihood of an RBA interest rate hike in November has increased.
• Hot Australian CPI data for Q3 and September has lifted RBA interest rate hike expectations.
• The Fed is seen leaving borrowing costs unchanged in the 3.75%-4.00% range.

The Australian Dollar (AUD) trades sharply higher against its major currency peers on Wednesday. Against the US Dollar (USD), the antipodean is up 0.15% to near 0.7035 even after giving back some of its early losses.

The Australian currency gains as hot Consumer Price Index (CPI) data for September and the third quarter this year has fuelled expectations of more interest rate hikes by the Reserve Bank of Australia (RBA) in the near term.

Month-on-Month CPI grew by 0.8%, faster than 0.7% estimates and the previous reading of 0.4%. On an annualized basis, inflationary pressures rose by 1.3% QoQ in the third quarter, as expected, faster than 0.6% growth recorded in the April-June period.

RBA seen delivering one last hike as TD Securities flags firmer inflation

According to TD Securities, the Reserve Bank of Australia is now expected to deliver another rate increase at next week’s meeting, with the bank forecasting that the RBA will “lift the cash rate 25bps … to 4.85%.” Strategists argue that “the firmer Q3 CPI outcome validates the Bank's decision to hike last month,” and that “likely forecast upgrades to the Bank's inflation track in the November Statement on Monetary Policy likely justify a follow-up 25bps hike next week.” TD Securities adds that this “hike should mark the last in the cycle,” suggesting the tightening phase is nearing its end.

Meanwhile, the US Dollar trades firmly ahead of the Federal Reserve’s (Fed) monetary policy announcement due at 18:00 GMT.

Fed seen on hold as Deutsche Bank flags hawkish message ahead

Economists at Deutsche Bank expect the Fed to keep monetary policy unchanged at today’s meeting, noting that “futures are pricing less than a 10% chance of a hike.” However, they anticipate the communication will lean firmly to the hawkish side, with the “broader message” likely to stress that “recent inflation data support the case for further tightening over time.” In that context, Deutsche Bank’s team continues to “foresee 50bp of further hikes across December and March,” reinforcing expectations that the Fed will keep additional tightening on the table even while standing pat for now.

AUD/USD Technical Analysis

On the daily chart, AUD/USD trades at 0.7038, holding a mildly bullish near-term bias as spot remains above the 20-period Exponential Moving Average (EMA) at 0.7009. The pair is attempting to build on its recent recovery from last week’s lows, while the Relative Strength Index (RSI) at around 54 stays in neutral-positive territory, hinting that upside momentum is constructive but not extended.

On the downside, initial support is aligned at the psychological 0.7038 area, with a break exposing the dynamic floor provided by the 20-day EMA at 0.7009. As long as price holds above this moving average, pullbacks are likely to be viewed as corrective within a budding recovery phase, while a daily close below it would undermine the current positive tone and open the door to a deeper retracement.

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