AUD/USD edges higher to approximately 0.7120 in the early European session on Tuesday. The hawkish tone of the RBA bolsters the Australian Dollar. Market participants are assigning a 56.5% likelihood to a Federal Reserve interest rate increase in October. The AUD/USD pair advances to approximately 0.7120 in the early hours of European trading on Tuesday. The Australian Dollar strengthens against the US Dollar following Reserve Bank of Australia Governor Michele Bullock’s speech. Traders prepare for the upcoming statements from the Federal Reserve on Tuesday, seeking new momentum. RBA Governor Michele Bullock stated on Tuesday that supply shocks pose challenges for monetary policy, emphasising the necessity for policy to tackle the second-round effects of these shocks on inflation. These remarks were made in anticipation of the RBA’s policy meeting scheduled for September 28-29.
The Australian central bank is poised to increase its key interest rate in the upcoming week, as escalating energy prices present heightened risks to inflation, according to source, which cautions about the potential for an additional hike in November. Money markets are indicating a roughly 90% probability that the RBA will increase rates by a quarter-percentage point to 4.6% next week, as reported by source. The Federal Reserve raised interest rates to 3.75%–4.00% and indicated the possibility of additional increases before the end of the year. Hawkish remarks from Fed officials reinforced expectations for further interest rate hikes, thereby bolstering the Greenback. Chicago Fed President Austan Goolsbee stated on Monday that the central bank must not disregard the ongoing and consistent supply shocks. Meanwhile, St. Louis Fed President Alberto Musalem indicated that further rate increases could be required to meet the Fed’s inflation target.
Traders are currently assigning a probability of approximately 56.5% for a rate increase of at least 25 basis points at the Federal Reserve’s October meeting, as indicated by the CME FedWatch tool, an increase from the 43.5% observed a week prior. Analysts point out that rate expectations have shifted decisively ahead of next week’s RBA meeting, with the bank noting that the “RBA’s OIS market is now pricing in 85% chance of a 25bp hike during next week’s monetary policy board meeting.” They suggest this elevated probability underscores the market’s conviction that the RBA is leaning toward further tightening, reinforcing support for the Australian Dollar into the decision. In the daily chart, AUD/USD remains positioned above both the lower band of the Bollinger Bands and the 100-day simple moving average, which together support a positive near-term outlook.
Price remains below the Bollinger middle band, indicating that the advance is still constrained by overhead supply, while the Relative Strength Index (14) at 47 hovers near neutral, suggesting a consolidative rather than impulsive momentum. On the topside, initial resistance is observed at the Bollinger middle band around 0.7160, followed by a more significant barrier at the Bollinger upper band near 0.7235. On the downside, immediate support is observed at the lower Bollinger band at 0.7085, followed by the 100-day SMA at 0.7075. A deeper pullback is anticipated to draw dip-buying interest, provided these underlying levels remain intact.
