Australian Dollar holds firm as hotter US inflation fails to cement Greenback's advantage

• Core US inflation ran hotter than forecast in August, lifting the odds of a Fed rate hike next week.
• Treasury yields are higher for short tenures, yet the Dollar's post-CPI bounce has already faded.
• The Aussie is holding near recent highs, supported by the Dollar's failure to turn its policy story into strength.

AUD/USD is edging higher today but is yet to retake the 0.7200 mark on Friday. The pair is clawing back part of the previous session's sharp sell-off after hitting multi-month highs in the high 0.7200s. The recovery holds even after a firmer-than-expected United States (US) inflation print that would normally weigh on the Aussie.

US core Consumer Price Index (CPI) data ran hotter than forecast in August, strengthening the case for a Federal Reserve (Fed) rate hike at next week's meeting. Though headline CPI rose 0.4% MoM, in line with expectations, core inflation increased 0.3%, its fastest pace since April and above the 0.2% consensus.

Higher Crude and rising front-end yields would normally support the US Dollar, but it has struggled to follow either signal. A growing US policy premium has taken hold of FX pricing and weakened those traditional links. Investors remain wary of the policy mix, the fiscal outlook, and efforts to hold down long-term borrowing costs. That hesitation is helping the Aussie keep its ground.

The 2-year US Treasury yield, the one most sensitive to Fed policy, pushed up to around 4.62% and rose roughly 3 basis points on the day as it leaned into a near-term interest rate hike. The 10-year offered some relief at the long end, but remains sitting near its highest level since 2023 and holding above the 4.90% level.

Energy remains an inflation risk. Brent Crude is reported above $107 a barrel amid continued disruption around the Strait of Hormuz, although West Texas Intermediate (WTI) Oil fell about 3%. The International Energy Agency (IEA) says the global Oil supply deficit is set to worsen this year, with inventories down a further 95 million barrels last month. The institution does not expect Gulf output to fully recover until next year.

The clearest near-term catalyst is next week's Fed decision. A decisive hike backed by firm guidance would give the US Dollar its strongest support in weeks; anything softer could reinforce the view that policymakers are reluctant to confront persistent inflation.

Technical analysis:

In the 4-hour chart, AUD/USD trades at 0.7176, maintaining a capped near-term tone as it holds beneath both the 20-period Simple Moving Average (SMA) at 0.7199 and the 100-period SMA at 0.7178. The pair is testing a nearby horizontal pivot at 0.7176 after failing to sustain recent gains, while the Relative Strength Index (RSI) around 40 hints at fading bullish momentum and keeps the risk tilted modestly to the downside while below these moving averages.

On the topside, initial resistance is seen at the 100-period SMA near 0.7178, followed by the horizontal barrier at 0.7188, with the 20-period SMA at 0.7199 reinforcing a broader supply zone overhead. On the downside, immediate interest sits at the 0.7176 pivot, ahead of further support at 0.7165 and then 0.7154, where a deeper slide would expose a more meaningful deterioration in the short-term structure.

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