Australian Dollar retreats from highs as Warsh’s hawkish message lifts US Dollar

• AUD/USD falls 0.30% on Friday, correcting after reaching its highest level since mid-May earlier in the day.
• Warsh stresses the need to bring inflation sustainably back toward the 2% target despite the resilience of the US economy.
• In Australia, persistently elevated inflation keeps expectations of further interest-rate hikes alive.

AUD/USD retreats 0.30% on Friday to trade around 0.7170 at the time of writing, correcting after reaching its highest level since mid-May at 0.7206 earlier in the day. The Australian Dollar (AUD) loses ground against the US Dollar (USD), which attracts renewed demand following hawkish comments from Federal Reserve (Fed) Chair Kevin Warsh.

Warsh stresses that price stability must remain the US central bank’s predominant focus. He says policymakers need to be confident that underlying inflation is moving toward the Fed’s objective and warns that they still “have work to do” if this trend does not materialize.

On inflation, the Fed Chair acknowledges that data released during the summer have been better than expected but says they are not sufficient to demonstrate a meaningful shift in underlying price dynamics. He also reiterates that the Fed’s 2% Personal Consumption Expenditures (PCE) inflation target remains “firm and fixed.”

Warsh’s hawkish tone triggers a significant repricing of monetary policy expectations. According to the CME FedWatch Tool, markets now assign around a 60% chance to an interest-rate hike at the Fed’s September meeting, up from roughly 36% before Warsh’s speech. The shift supports the US Dollar and puts downward pressure on AUD/USD.

On the Australian side, the Australian Dollar retains some support from the monetary policy outlook of the Reserve Bank of Australia (RBA). In its Bulletin released on Thursday, the central bank notes that consumer prices have remained elevated above its 2%-3% target for much of the post-pandemic period, fueling expectations of a fourth interest-rate hike before the end of the year.

These expectations are also supported by the latest Australian inflation data. The Consumer Price Index (CPI) eased to 3.5% YoY in July from 3.8% in June but remained above the 3.2% expected by markets. Meanwhile, the Trimmed Mean CPI held steady at 3.6% YoY, compared with expectations for a slowdown to 3.5%.

With both the Fed and the RBA facing persistent inflation pressures, AUD/USD remains caught between competing monetary policy forces. For now, the sharp repricing of US interest-rate expectations is dominating, allowing the US Dollar to regain the upper hand on Friday and prompting AUD/USD to pull back from its highest level since mid-May.

AUD/USD technical analysis

In the four-hour chart, AUD/USD trades at 0.7166, holding a modest bullish bias as it remains above the 100-period and 200-period simple moving averages (SMAs) at 0.7108 and 0.7053, respectively, as well as the rising trend-line support around 0.7117. The Relative Strength Index (RSI) has cooled to about 46, suggesting momentum has normalized from overbought territory but still allows for consolidation above these structural floors while the pair probes overhead barriers.

On the downside, initial support is seen at the horizontal level near 0.7135, followed by the trend-line area around 0.7117 and the 100-period SMA at 0.7108, with the 200-period SMA at 0.7053 reinforcing the broader bullish structure. On the topside, immediate resistance is located at the recent horizontal cap near 0.7206, and a clear break above this ceiling would be needed to reopen a more impulsive advance in the pair.

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