AUD/USD declines as the US Dollar strengthens following hawkish remarks from the Federal Reserve, which bolster expectations for a rate hike in December. Australia’s Consumer Inflation Expectations hold firm at 5.3% in November, maintaining their peak since June. The Australian Dollar faces challenges as the RBA is anticipated to maintain interest rates at their current levels for the foreseeable future. AUD/USD experiences a decline for the third consecutive day, currently trading near 0.6840 during the Asian session on Thursday. The pair falls to nearly 10-month lows as the US Dollar receives support from an increasingly hawkish Federal Reserve policy outlook.
In light of the recent US Consumer Price Index inflation data, which exceeded expectations, market participants have intensified their expectations for a rate hike in December. This sentiment has been further bolstered by comments from Fed Governor Christopher Waller, who indicated earlier this week his support for a quarter-point increase, or potentially a half-point adjustment should inflation deteriorate. According to the CME FedWatch Tool, markets currently reflect an approximately 87% probability of a December rate hike, coupled with a nearly 13% likelihood of a more substantial 50 basis point increase.
Australia’s Consumer Inflation Expectations remained unchanged at 5.3% in November, consistent with the prior month’s figure and sustaining their peak level since June. These heightened anticipations stem from the headline inflation data for September, which surged to a six-month peak of 4.3% and continues to exceed the Reserve Bank of Australia’s target range of 2-3%. Despite persistent price pressures, the Australian Dollar faces headwinds amid growing market speculation that the RBA has reached the end of its tightening cycle and will hold interest rates steady for the foreseeable future.
Looking further ahead, Prime Terminal data indicates that markets are pricing in approximately 28 basis points of RBA rate cuts in 2027. Strategists warn that the latest upswing in global bond yields is beginning to bite in interest‑sensitive sectors, noting that “the rise in bond yields, however, is feeding through to leveraged housing markets, and Australia is certainly one of them.” This reinforces concerns that Australia’s highly indebted households and housing market are particularly exposed as funding costs move higher.
