Aussie Dollar holds above 0.7000 as Fed and RBA, inflation tests loom
- AUD/USD gains 0.11% despite Dollar strength and choppy trading conditions.
- December Fed hike odds reach 82% ahead of Warsh's press conference.
- Australian CPI could reinforce RBA tightening expectations if inflation accelerates.
The Australian Dollar consolidates for the fourth straight day versus the US Dollar, yet registers modest gains of 0.11%, as price action shifts to choppy ahead of the Federal Reserve’s monetary policy decision. A busy US economic docket barely moved the markets, while traders eye the release of Australia’s Consumer Price Index (CPI).
AUD/USD consolidates near 0.7024 as traders await crucial monetary policy signals from both central banks
At the time of writing, AUD/USD trades at 0.7024, even as the Greenback has registered gains. The US Dollar Index (DXY), which measures the performance of six currencies against the US dollar, is up 0.36% to 102.16.
In the US, the Conference Board (CB) Consumer Confidence improved from 82.2 in September to 91.7 in October, exceeding forecasts. Durable Goods Orders increased by 1.8%, up from 0.1% in September, while the ADP Employment Change was 16.8K, below the previous reading of 17.5K.
Market participants' focus is on the central bank bonanza, led by the Fed. The US central bank is expected to hold rates unchanged, yet the odds of a 25-basis-point hike in December are near 82%. After this, Fed Chair Kevin Warsh's press conference would dictate whether the FOMC eyes another rate hike this year or moves to 2027.
Another thing to consider is the release of the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index on Thursday. A hot reading, and if the US Gross Domestic Product (GDP) shows that the economy is resilient, could cement the case for a December rate increase.
In Australia, the schedule will feature a speech by Reserve Bank of Australia (RBA) Governor Michele Bullock and the release of the September CPI. The trimmed mean reading is forecast at 0.3% MoM, a tenth higher than the previous month’s 0.2%. On an annual basis, if CPI rises past August’s 3.6%, this paves the way for further tightening.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.7028, maintaining a mildly bearish near-term bias as it holds below the cluster of the 50-, 100- and 200-day simple moving averages (SMAs) grouped around 0.7072. Price also trades under a series of rising trend-line break levels at 0.7105 and 0.7455, reinforcing the idea of overhead supply despite the Relative Strength Index (RSI) at 52.6 hinting at slightly improving momentum rather than outright weakness.
On the topside, initial resistance is located at the SMA cluster near 0.7072, followed by the upward trend-line break around 0.7105 and a more significant horizontal barrier at 0.7198. On the downside, immediate support emerges from the rising trend line around 0.6920, ahead of the older downward trend-line break near 0.6353, while the current 0.7028 area acts as a short-term pivot where sellers still retain the upper hand unless the pair can reclaim the 0.7070/0.7110 zone decisively.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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