Australian Dollar Strengthens Above 0.7000 as Markets Await Australia’s CPI and Fed Rate Decision

• At around 0.7025, AUD/USD trades modestly higher during Tuesday’s Asian session.
• The fight against inflation is "not quite yet" over, according to the RBA’s Hunter.
• Wednesday brings Australia’s CPI inflation figures and the Fed’s interest rate decision into focus.

With Australia’s September Consumer Price Index (CPI) inflation report due later on Wednesday, followed by the US Federal Reserve (Fed) interest rate decision, traders are preparing for both releases. Expectations of a hawkish interest rate stance from the Reserve Bank of Australia (RBA) are supporting AUD/USD, which advances towards 0.7025 in Tuesday’s Asian trading.

At 4.6%, Australian interest rates reached their highest level in 15 years after the RBA raised them in late September. Further increases appear likely at policymakers’ meeting early next month, with RBA Assistant Governor Sarah Hunter indicating that the central bank is “not quite yet” finished with its fight against inflation.

On the challenge of inflation, Hunter said: “The board have put through four rate hikes this year to keep on tackling the challenge”. She continued: “Unfortunately, not quite yet.” Hunter added: “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,”

Wednesday’s Australian inflation release will be scrutinised for indications of the future interest rate path. Forecasts put September’s headline CPI increase at 4.2% YoY, compared with 4.0% previously. Monthly CPI inflation is expected to accelerate from 0.4% in August to 0.7% in September.

Later that day, the focus turns to the Fed’s policy meeting, where economists anticipate an unchanged interest rate following September’s increase. Nevertheless, expectations of further tightening remain high: markets assign a strong probability to another rate rise in December.

AUD/USD retains upside potential as UOB maintains its targets

A positive medium-term view of AUD/USD remains in place at UOB Group. Its strategists recall that they “turned positive on AUD last Wednesday (21 Oct, spot at 0.7005), indicating that AUD ‘could rise toward 0.7035.’” With that first objective achieved, they explain 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.’” Their positive bias over 1–3 weeks rests on the key downside threshold of 0.6985. UOB states that it will “continue to hold the same view as long as 0.6985 (no change in ‘strong support’ level) is not breached,” underscoring the importance of that support.

Warsh keeps Fed policy data-dependent while highlighting investment growth and AI risks

A reading of 5.6/10 on the FXS Speechtracker puts Fed Chair Warsh’s speech slightly below the historical average of 6.1/10. Although upbeat about structural growth and a surge in investment, his tone remains cautious and shaped by past crises. Describing himself as “over-scarred from the global financial crisis” points to continued vigilance over financial stability and tail risks. At the same time, Warsh stresses the strength of policy-driven investment without prejudging the October and December meetings, leaving the interest rate outlook for the Dollar firmly dependent on incoming data. His assessment of AI spans its role as a near-term demand shock, its usefulness in improving data and monetary policy, and its possible, though uncertain, disruption to employment. Markets will interpret this forward-looking emphasis on risk as favouring gradual policy moves rather than aggressive tightening.

Despite the marginally softer FXS Speechtracker reading, the broader policy message remains distinctly hawkish. The FXS Fed Sentiment Index registered a 0.00-point change, holding at an elevated 127.51. Its position comfortably above 100 indicates that the Fed continues to favour restrictive policy settings. Rhetoric about surging investment, coupled with hopes for AI-led productivity gains, should sustain expectations supportive of the Dollar, even as Warsh stresses that decisive moments later this year will depend on the data.

Technical Analysis: AUD/USD faces a ceiling at the 100-day SMA

Trading below the 100-day simple moving average (SMA) leaves AUD/USD under short-term pressure on the daily chart and limits the broader outlook. The latest Relative Strength Index (14) reading of 52 points to momentum settling rather than clear strength. Meanwhile, the price sits above the middle Bollinger Band but below the upper band, indicating consolidation in the lower half of the recent volatility envelope.

The 100-day SMA at 0.7035 presents the first upside hurdle, with the upper Bollinger Band around 0.7045 forming the next resistance area, where sellers could return. Below the market, the middle Bollinger Band near 0.6978 offers immediate support. A further buffer lies at the lower band around 0.6915, the bottom of the current trading range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)