Australian Dollar gathers strength above 0.7000, Australia's CPI and Fed rate decision in focus
- AUD/USD edges higher to around 0.7025 in Tuesday’s Asian session.
- RBA’s Hunter says the central bank is "not quite yet" done fighting inflation.
- Australia’s CPI inflation data and the Fed interest rate decision will be in the spotlight on Wednesday.
The AUD/USD pair gathers strength to near 0.7025 during the Asian trading hours on Tuesday, bolstered by hawkish Reserve Bank of Australia (RBA) rate expectations. Traders brace for Australia’s September Consumer Price Index (CPI) inflation report later on Wednesday ahead of the US Federal Reserve (Fed) interest rate decision.
The RBA lifted interest rates in late September to the highest level in 15 years at 4.6%. RBA Assistant Governor Sarah Hunter said that the central bank “not quite yet" is done fighting inflation, signaling further rate hikes are likely when policymakers meet early next month.
“The board have put through four rate hikes this year to keep on tackling the challenge” of inflation, said Hunter. “Unfortunately, not quite yet.” “I’m not going to front run what the board might or might not do with interest rates. All I do know is that they are committed to tackling inflation and getting inflation down,” Hunter added.
Traders will keep an eye on the Australian inflation data on Wednesday for more clues on the interest rate path. The headline CPI is expected to show a rise of 4.2% YoY in September, versus 4.0% prior. On a monthly basis, the CPI inflation is projected to increase to 0.7% in September from 0.4% in August.
Attention will shift to the Fed policy meeting later in the same day. Economists expect the US central bank to leave the interest rate unchanged following September’s hike. However, expectations for another rate increase remain elevated, with markets pricing in a strong chance of another rate hike in December.
Aussie outlook stays constructive as UOB holds to upside targets
Strategists at UOB Group maintain a constructive medium-term stance on AUD/USD, noting that they “turned positive on AUD last Wednesday (21 Oct, spot at 0.7005), indicating that AUD ‘could rise toward 0.7035.’” After that initial target was reached, they add that “after AUD tested 0.7035, we highlighted on Thursday (22 Oct, spot at 0.7025) that AUD ‘could advance further, though the next technical target at 0.7070 may not come into view so soon.’” UOB says it will “continue to hold the same view as long as 0.6985 (no change in ‘strong support’ level) is not breached,” reinforcing 0.6985 as the key downside level underpinning their 1–3 week positive bias.
Warsh flags investment surge and AI risks but keeps Fed path data-dependent
Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, modestly softer relative to the historical average of 6.1/10 and reflecting a cautious, crisis-scarred tone despite optimism on structural growth and an investment surge. The admission of being “over-scarred from the global financial crisis” underscores a bias toward vigilance on financial stability and tail risks, even as Warsh highlights policy-driven investment strength and refuses to pre-judge the October and December meetings, keeping the Dollar’s rate path firmly data-dependent. Warsh’s focus on AI as a near-term demand shock, a tool for better data and monetary policy, and a potential but uncertain employment disruptor adds a forward-looking, risk-aware layer that markets will read as supportive of gradualism rather than aggressive tightening.
The FXS Fed Sentiment Index was unchanged, moving 0.00 points to a still-elevated level of 127.51, signaling that the overall policy tone remains clearly hawkish despite the slightly softer FXS Speechtracker score. With the index firmly above 100, the Fed’s stance continues to lean toward restrictive policy settings, and the combination of investment surge rhetoric and AI-driven productivity hopes should keep Dollar-supportive expectations intact even as Warsh emphasizes data-dependent crystallizing moments later this year.
Technical Analysis: AUD/USD remains capped under the 100-day SMA
In the daily chart, AUD/USD remains under near-term pressure as it holds below the 100-day simple moving average (SMA), keeping the broader tone capped despite the latest Relative Strength Index (14) reading at 52, which hints at stabilizing momentum rather than outright strength. Price is also positioned below the upper Bollinger Band while staying above the middle band, suggesting consolidation within the lower half of the recent volatility envelope.
On the topside, initial resistance is located at the 100-day SMA at 0.7035, followed by the upper Bollinger Band around 0.7045, where selling interest could re-emerge. On the downside, immediate support is provided by the Bollinger middle band near 0.6978, ahead of a deeper cushion at the lower band around 0.6915, which marks the lower edge of the current trading range.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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