AUD/USD Price Forecast: Trims hot Aussie CPI-led gains; holds above 0.7000 ahead of Fed
- AUD/USD struggles to capitalize on hot Australian CPI-led gains to a fresh one-month high.
- Fed hike bets and geopolitical risks underpin the safe-haven USD, capping gains for the pair.
- The technical setup seems tilted in favor of bulls as traders keenly await the FOMC decision.
The AUD/USD pair trims a part of its intraday gains to a fresh one-month high, touched during the Asian session on Wednesday in reaction to hot Australian consumer inflation figures. Spot prices, however, retain a positive bias for the second straight day and currently trade around the 0.7030 region, up just over 0.10% for the day.
The Australian Bureau of Statistics (ABS) reported that the headline Consumer Price Index (CPI) accelerated from the 4.0% YoY rate to 4.3% in September, while the annual trimmed mean inflation remained above the Reserve Bank of Australia's (RBA) 2-3% target. The data reaffirmed bets for an imminent RBA rate hike in November, which, in turn, provides a goodish lift to the Australian Dollar (AUD). However, a broadly firmer US Dollar (USD) caps the AUD/USD pair as traders keenly await the outcome of a two-day FOMC meeting.
Heading into the key central bank event, investors seem convinced that the US Federal Reserve (Fed) will stick to its hawkish outlook and raise borrowing costs again by the year-end amid inflationary concerns stemming from elevated energy prices. Adding to this, the geopolitical risk premium remains in play amid fears of a further escalation of tensions in the Middle East. This assists the safe-haven Greenback to gain positive traction for the fourth straight day and touch a two-week high, which, in turn, caps the upside for the AUD/USD pair.
Spot prices retain a positive bias above the 38.2% Fibonacci retracement level of the September-October downswing. Moreover, the Moving Average Convergence Divergence (MACD) has turned positive and risen above its signal line with an expanding positive histogram. Adding to this, the Relative Strength Index (RSI) at 53.7 leans modestly higher, hinting that downside pressure is easing. However, the AUD/USD pair's failure to build on strength above the 100-day Exponential Moving Average (EMA) warrants caution for bullish traders.
Hence, a sustained move and acceptance above the 100-day EMA is needed to back the case for additional gains to the 50.0% retracement at 0.7066 and the 61.8% level at 0.7106, with higher barriers at 0.7164 and the swing high at 0.7238. On the downside, initial support emerges at the 38.2% Fibo. retracement at 0.7025, ahead of the 23.6% level at 0.6975, while a deeper slide would expose the structural anchor around 0.6893.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
AUD/USD daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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