Australian Dollar retreats from recent peak as RBA hike odds rise ahead CPI

• The Australian Dollar loses 0.24% on Monday but holds above 0.7000 after reaching a one-month high.
• Growing expectations of another interest rate hike in Australia could limit Aussie's downside.
• Investors await Australian inflation figures and the Federal Reserve's monetary policy decision on Wednesday.

AUD/USD edges lower on Monday, trading around 0.7015 at the time of writing, down 0.24% on the day. The pair retreats after reaching its highest level in a month earlier in the day, as investors adopt a cautious stance ahead of several major economic events this week.

The Australian Dollar (AUD) could draw support from growing expectations of another interest rate hike by the Reserve Bank of Australia (RBA) at its upcoming November monetary policy meeting.

These expectations have strengthened following recent hawkish comments from RBA Assistant Governor Sarah Hunter, who warned that inflation has not yet been fully brought under control. She indicated that further interest rate increases could be necessary, particularly amid the risk of international inflationary pressures becoming entrenched in the Australian economy.

Against this backdrop, investors are closely watching Wednesday's release of Australia's Consumer Price Index (CPI). Higher-than-expected inflation could reinforce expectations of further monetary tightening by the RBA, providing additional support for the Australian Dollar. Conversely, a sharper slowdown in price pressures could weaken rate hike expectations and weigh on the currency.

On the US side, the US Dollar (USD) struggles to extend Friday's modest recovery after hitting a three-week low. Declining US Treasury bond yields and hopes of easing tensions in the Middle East are limiting demand for the Greenback. However, geopolitical uncertainties remain and could trigger renewed safe-haven demand for the US Dollar.

Market attention is also turning to Wednesday's monetary policy decision by the Federal Reserve (Fed), following the two-day Federal Open Market Committee (FOMC) meeting. Investors will closely examine the central bank's guidance regarding the future path of interest rates.

The US economic calendar remains busy, with Thursday bringing the advance estimate of third-quarter Gross Domestic Product (GDP) and the Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge closely monitored by the Fed.

These releases could reshape expectations for the future path of US interest rates and trigger renewed volatility in AUD/USD, as the diverging monetary policy outlooks in Australia and the US remain in focus.

RBA hike risks build as TD flags hawkish shift and November move

According to TD Securities, markets had been “under-priced for the risk of a follow-up hike” even as the bank’s earlier commentary, following the Minutes of the RBA’s September meeting, maintained a call for no further increases this year. On returning to the office, TD’s team “listened to the Deputy Governor's fireside chat from last week and there is no confusion here - his comments were hawkish,” marking a clear shift in tone.

TD stresses that “the Deputy Governor's hawkish comments last week preceded this week's Q3 CPI,” and that “the timing of this hawkish commentary runs counter to his hawkish commentary in March of this year and earlier last month that were delivered after strong data outcomes.” This sequencing, they argue, materially changes the policy risk profile around the upcoming meeting.

On the data front, TD Securities “forecast Q3 quarterly trimmed mean to print 0.92% q/q, above the Bank's 0.85% forecast.” They note that, “theoretically, this should be enough for the Bank to remain on hold at its November meeting given the Bank's decision to hike at its September meeting.” However, in their view, “Deputy Governor Hauser's comments detailed above open up the real possibility the Bank uses its updated set of inflation forecasts in its November Statement on Monetary Policy to hike at that meeting.” As a result, TD concludes that “odds of the RBA hiking should be above 60% the market has currently priced.”

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7018 and remains mildly capped in the near term, with price holding below the 100-period simple moving average (SMA) at 0.7020 and the horizontal barrier at 0.7040. The pair still trades above the longer-term 200-period SMA at 0.6990, but the Relative Strength Index (14) near 41 suggests fading bullish momentum and a corrective tone while the broader uptrend structure stays intact.

On the downside, initial support is seen at 0.7013, ahead of the horizontal floor at 0.6994 and the 200-period SMA at 0.6990, which together define a key demand zone for buyers to defend. On the topside, immediate resistance aligns at the 100-period SMA at 0.7020, with a stronger cap at 0.7040; a sustained break above these levels would ease current selling pressure and reopen the path toward higher hourly highs.

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