Australian Dollar bulls seem hesitant below one-month top before Aussie CPI, FOMC meeting
- AUD/USD continues its struggle to make it through the 100-day SMA resistance.
- US bond yields undermine the USD, supporting spot prices amid RBA hike bets.
- The focus remains on Australia’s CPI report, Fed decision and key US macro data.
The AUD/USD pair retreats slightly from a one-month high, touched earlier this Monday, though it lacks follow-through and holds above the 0.7000 psychological mark through the Asian session.
The Australian Dollar (AUD) continues to draw some support from rising market expectations for another interest rate hike by the Reserve Bank of Australia (RBA) at its upcoming November policy meeting. The bets were lifted by recent hawkish comments from RBA Assistant Governor Sarah Hunter, saying that inflation has not yet been brought fully under control and that interest rates may need to rise further amid the risk of overseas price pressures becoming entrenched in the economy.
The US Dollar (USD), on the other hand, struggles to capitalize on Friday's modest recovery from a three-week low amid hopes of de-escalation of tensions in the Middle East and a further decline in US bond yields. This, in turn, might continue to act as a tailwind for the AUD/USD pair. Bulls, however, seem hesitant and opt to wait for the release of the latest Australian consumer inflation figures and the outcome of the highly anticipated two-day FOMC monetary policy meeting on Wednesday.
Traders will further take cues from the release of the Advance US Q3 GDP report and the US Personal Consumption Expenditures (PCE) Price Index on Thursday for more cues about the Federal Reserve's (Fed) future policy path, which will drive the USD. In the meantime, geopolitical uncertainties could support the safe-haven buck and cap the AUD/USD pair, making it prudent to wait for a move beyond the 100-day Simple Moving Average (SMA) before positioning for an extension of a short-term uptrend.
AUD/USD daily chart
Technical Analysis
The AUD/USD pair keeps a capped bias beneath the 100-day Simple Moving Average (SMA) at 0.7033 and has now slipped back below the mid-range Fibonacci retracements. The 50.0% level at 0.7065 and the 61.8% level at 0.7105 could act as overhead barriers, while initial support emerges at the 38.2% Fibo. retracement at 0.7025. Further demand is expected near the 23.6% level at 0.6976 and the broader structural floor around the Fibonacci anchor at 0.6896.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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