AUD/USD drifts higher to approximately 0.7055 in Thursday’s Asian session. Market expectations for an RBA rate hike surged to 82% in response to robust CPI data. The Federal Reserve maintained its benchmark interest rate at its current level on Wednesday; Warsh did not provide a definitive indication regarding a potential shift in December. The AUD/USD pair strengthens, approaching 0.7055 during the Asian trading hours on Thursday. The Australian Dollar edges higher against the US Dollar as hotter inflation data bolsters expectations of Reserve Bank of Australia rate hikes. The US September Personal Consumption Expenditures inflation report is set to capture attention later on Thursday. Australia’s headline Consumer Price Index accelerated to 4.3% year-on-year in September, up from 4.0% in August, as reported by the Australian Bureau of Statistics on Wednesday. This figure exceeded the market consensus of 4.2%. In September, the CPI inflation experienced an increase to 0.8% on a monthly basis, compared to the prior reading of 0.4%.
This report has strengthened the argument for an RBA rate hike in the forthcoming meeting and bolsters the Australian dollar. Markets are currently assigning an approximately 82% probability to an interest rate hike to 4.85% at the forthcoming RBA Board meeting, a notable increase from the 62% likelihood observed prior to the data release, as indicated by the ASX RBA Rate Tracker. On Wednesday, the US Federal Reserve maintained its benchmark interest rate at 3.75%-4.00%, aligning with widespread expectations. According to the statement, the central bank upgraded its assessment of the economy while recognising that inflation “remains elevated.” During the press conference, Fed Chairman Kevin Warsh refrained from providing guidance on the outlook, yet recognised that the central bank had not attained price stability. “We’re working on it,” Warsh stated. Traders are factoring in a 78% probability of a rate hike in December, as indicated by the CME FedWatch tool. “Warsh’s silence on further rate hikes was interpreted as dovish, or not hawkish enough,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
Strategists highlight that the latest Australia inflation data “beat expectations, strengthening the case for another RBA hike and underpinning AUD.” They note that September headline CPI “rose 4.3% y/y (consensus: 4.2%) vs. 4.0% in August reflecting rising housing and transport costs,” leaving price pressures running hotter than the central bank had anticipated. BBH stresses that “inflation is materially worse than the RBA assessed in August, when it forecast year-end headline CPI at 3.6% and trimmed mean at 3.3%.” In their view, “this argues for additional tightening,” with RBA cash rate futures having “raised odds of a 25bps hike to 4.85% on November 3 from 60% to 85%, and increased bets on another hike in Q1.” BBH highlights that “trimmed mean CPI matched consensus at 3.6% y/y up from 3.5% in August.” They further note that “the policy-relevant Q3 trimmed mean CPI ran hot at 3.7% y/y (consensus: 3.6%) vs. 3.6% in Q2,” which reinforces the perspective that underlying inflation continues to be uncomfortably elevated for the RBA.
Warsh highlights a significant increase in investments and the associated risks of AI, while refraining from making any firm commitments regarding interest rates. Fed Chair Warsh’s speech scores 5.6/10 on the FXS Speechtracker, which is modestly softer than the historical average of 6.1/10. This reflects a cautious tone despite upbeat comments on structural growth and an investment surge. The remark about being “over-scarred from the global financial crisis” highlights a persistent risk-awareness that tempers optimism. Additionally, repeated refusals to prejudge the October and December meetings maintain rate expectations in a state of deliberate opacity, even as Warsh emphasises AI and investment as key upside forces. Overall, the tone is balanced: supportive of continued growth and AI-driven productivity, yet framed by an emphasis on financial stability and tail risks that limits any fresh hawkish signal for the Dollar. The FXS Fed Sentiment Index remained stable, registering no change at a high level of 127.51. This stability indicates that the speech maintained a hawkish perception of the policy stance, despite the absence of additional tightening signals. The unchanged index, along with a slightly below-baseline FXS Speechtracker score, implies that the Dollar’s current hawkish premium is preserved but was not significantly bolstered by this appearance.
In the daily chart, AUD/USD exhibits a mildly bullish near-term bias as the spot trades above the 100-day simple moving average and the Bollinger middle band, indicating a constructive underlying trend following the recent recovery from sub-0.70 levels. The Relative Strength Index at 57 remains in positive territory without reaching overbought conditions, suggesting that upside momentum is improving but not excessive. On the topside, immediate resistance is positioned at the Bollinger upper band near 0.7065, where the current advance is beginning to encounter obstacles. On the downside, initial support is observed at the 100-day SMA at 0.7035, followed by the Bollinger middle band around 0.6990. A more pronounced pullback would likely discover stronger demand toward the lower Bollinger band near 0.6915.
