Australian Dollar nudges higher on renewed RBA tightening bets after hotter inflation

• The Australian Dollar gains 0.08% on Friday, supported by expectations of further monetary tightening in Australia.
• Australian inflation accelerated to 4.3% in September, boosting expectations of an interest rate hike in November.
• The Fed holds interest rates steady, while policymakers remain cautious about persistent inflationary pressures.

AUD/USD edges slightly higher on Friday, gaining 0.08% on the day to trade around 0.7035 at the time of writing. The Australian Dollar (AUD) benefits from growing expectations of an interest rate hike by the Reserve Bank of Australia (RBA), following hotter-than-expected inflation data and recent hawkish remarks from central bank officials.

The latest figures released on Wednesday by the Australian Bureau of Statistics (ABS) showed that the Consumer Price Index (CPI) rose 4.3% YoY in September, accelerating from 4% in August and exceeding market expectations of 4.2%. The renewed acceleration in inflation raises concerns about persistent price pressures and reduces the RBA's room to keep monetary policy unchanged.

RBA Governor Michele Bullock also struck a hawkish tone, indicating that the inflationary pressures that had concerned the central bank were beginning to emerge. Her comments have fueled speculation about another interest rate hike at the upcoming monetary policy meeting on November 3.

According to the ASX RBA Rate Tracker, markets now price in an 80% chance of an interest rate increase to 4.85% at the upcoming meeting, compared with 60% before the inflation data was released. This shift in monetary policy expectations supports the Australian Dollar, as investors increasingly anticipate that interest rates in Australia will remain elevated for longer.

On the US side, the US Dollar (USD) faces uncertainty surrounding the monetary policy outlook of the Federal Reserve (Fed). On Wednesday, the central bank left its benchmark interest rate unchanged within a range of 3.75%-4.00%, emphasizing the importance of incoming economic data in determining its next policy decisions.

Fed officials continue to monitor inflationary risks closely. On Friday, Richmond Fed President Thomas Barkin said that a gradual approach to interest rates remained appropriate, noting that the general direction of monetary policy was relatively straightforward, but that the pace of adjustments remained the key question.

Barkin also highlighted that US businesses are facing increasingly widespread cost pressures, prompting them to raise prices. He specifically pointed to the surge in artificial intelligence investment as an additional source of inflationary pressure, citing its impact on supply chains and overall demand.

These remarks suggest that the Fed could maintain a cautious approach amid persistent inflation. Nevertheless, growing expectations of monetary tightening in Australia continue to support AUD/USD, as investors now turn their attention to the RBA's next week policy decision.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7035, holding a mildly bullish near-term bias as it consolidates above the 100-period simple moving average (SMA) at 0.7032 and the 200-period SMA at 0.7026. The pair is pressing toward the immediate horizontal barrier at 0.7040, while the Relative Strength Index (14) around 52 suggests steady but not overstretched buying interest, hinting that dips may attract demand as long as price holds over the underlying moving-average support.

On the topside, initial resistance emerges at 0.7040, ahead of a higher cap at 0.7055 and a more significant hurdle near 0.7068. On the downside, the 100-period SMA at 0.7032 forms the first layer of support, followed by the 200-period SMA at 0.7026, with deeper floors seen at the horizontal levels of 0.7010 and 0.6994 if corrective pressures intensify.

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