AUD/USD appreciates to approximately 0.7035 during the Asian session on Friday. Australia’s inflation has exceeded expectations, prompting hawkish comments from the RBA, which have in turn heightened anticipations of an interest rate increase. The Fed held steady on rates at the conclusion of its October meeting, maintaining its target range of 3.75% to 4.00%. The AUD/USD pair strengthens to approach 0.7035 during the Asian trading hours on Friday. The Australian Dollar edges higher against the US Dollar as hotter Australian CPI inflation data has bolstered expectations of Reserve Bank of Australia rate hikes. The Australian Consumer Price Index inflation increased 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%. RBA Governor Michele Bullock indicated that the price pressures of concern to the RBA were beginning to materialise. This report has strengthened the argument for a rate hike by the RBA in the forthcoming meeting next Tuesday and bolstered the Australian dollar. Markets are currently assigning an approximately 80% 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 opted to maintain its benchmark federal funds rate within a range of 3.75% to 4%. Governor Lisa Cook and Cleveland Fed President Beth Hammack expressed dissenting opinions, advocating for an increase in rates by 25 basis points. Policymakers expressed optimism that forthcoming data would provide valuable insights for their subsequent decision-making process. Traders are assigning a 74.9% likelihood to a rate hike in December, as indicated by the CME FedWatch tool. Strategists note that the latest Australia inflation data “beat expectations, strengthening the case for another RBA hike and underpinning AUD.” 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 highlights 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.”
On the core measures, BBH points out that “trimmed mean CPI matched consensus at 3.6% y/y up from 3.5% in August.” More importantly for policy, “the policy-relevant Q3 trimmed mean CPI ran hot at 3.7% y/y (consensus: 3.6%) vs. 3.6% in Q2,” reinforcing the view that underlying inflation remains uncomfortably elevated for the RBA. Warsh’s press conference tone is firmly consistent with the established baseline, with the FXS Speechtracker score at 7/10 matching the historical average and underscoring a steady hawkish stance. The key remark that “ensuring price stability is not about a fixed date on a calendar” reinforces a data-dependent, outcome-focused approach, while repeated references to “new monetary medicine,” removal of accommodation, and confidence in inflation expectations signal ongoing commitment to quashing inflation rather than pre-committing to a rapid pivot. Emphasis on a hard 2% PCE target, rejection of a “soft” inflation goal, and acknowledgement that interest rates are tightening financial conditions and affecting new technology and CAPEX all support a narrative of persistent policy resolve that is broadly supportive for the Dollar. The FXS Fed Sentiment Index increased by +14.39 points to 141.89, further entrenching sentiment in hawkish territory and corresponding with the stable 7/10 FXS Speechtracker score.
With the index significantly exceeding the neutral 100 line, the interplay of a robust 2% price stability commitment and the acknowledgement that “monetary medicine is starting to work” indicates that markets are likely to maintain a pricing structure reflective of a relatively restrictive Fed trajectory. This environment typically supports the Dollar in its valuation against the Euro and Yen. In the daily chart, AUD/USD exhibits a slight bullish inclination as the price remains above the 100-day simple moving average and the Bollinger middle band, indicating that the recent rebound is underpinned by fundamental demand. The Relative Strength Index at 53.4 has transitioned into neutral-to-positive territory, suggesting that buyers maintain a dominant position without yet driving the pair into overbought conditions. On the topside, immediate resistance is situated at the upper Bollinger band near 0.7065, where a sustained break would pave the way for a more prolonged recovery. On the downside, initial support is identified at the 100-day SMA at 0.7035, followed by the Bollinger middle band around 0.6995; a more significant pullback toward the lower Bollinger band at 0.6925 would likely draw new buying interest while maintaining the overall positive outlook.
