Australian Dollar holds losses below 0.7000 ahead of FOMC Minutes

AUD/USD edges lower to around 0.6970 in Wednesday’s early Asian session.
RBA is unlikely to lift rates again in November.
Markets are pricing in a rate hold from the Fed at its upcoming October meeting.

The AUD/USD pair declines to near 0.6970, snapping the three-day winning streak during the early Asian session on Wednesday. The Australian Dolllar (AUD) softens against the US Dollar (USD) as bets of the Reserve Bank of Australia (RBA) fall. Traders await the Minutes of the Federal Open Market Committee (FOMC) later on Wednesday for more clues on the policy outlook.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The odds of the RBA lifting interest rates in November have fallen sharply after the latest Consumer Price Index (CPI) came in line with expectations. Money markets are now betting the Australian central bank will likely keep rates on hold at its next meeting in early November. The odds of a rate hike dropped to around 20%, according to market data from LSEG.

Federal Reserve (Fed) Kansas City Fed President Jeff Schmid said on Tuesday that the central bank still needs to raise its policy rate further to lower inflation, even if higher long-term yields are weighing on activity in some parts of the economy.

Later on Wednesday, the Fed will release Minutes of its September 15-16 policy meeting when it hikes interest rates to contend with inflation. Remarks from Fed officials came across as less hawkish following softer-than-expected Personal Consumption Expenditures (PCE) inflation data and weaker jobs data last week.

"There seems to be a little bit less urgency on the Fed to hike rates after the softer PCE and then the nonfarm payroll reports recently," said Gavin Friend, a senior markets strategist at National Australia Bank.

Aussie recovery tests UOB’s strong resistance marker

Strategists at UOB Group note that their 1–3 week view on AUD/USD remains shaped by the prior downswing that began in mid-September, but they stress that “while the weakness that started in the middle of last month … remains intact, given the deeply oversold conditions, any further decline may fall short of the next major support at 0.6866.” They add that “downward momentum is starting to slow,” and reiterate that a decisive move through “0.6985 (no change in ‘strong resistance’ level) would indicate that 0.6866 is out of reach,” marking a shift away from the previously targeted downside.

Fed’s Schmid flags ai-driven inflation, keeps Fed in hawkish gear

Fed’s Schmid delivers a distinctly hawkish tone, with an 8/10 FXS Speechtracker score that is modestly stronger relative to the historical average of 7.5/10. The emphasis that the labor force “remains in a good place” alongside frustration with stubborn inflation and the assertion that AI is now one of the largest drivers of inflation underscores a view that price pressures are both persistent and structurally evolving. By stressing that the Fed’s credibility is at stake and that “work remains to be done on the short rate” despite higher long-term yields, the speech reinforces expectations for a prolonged period of restrictive policy, supportive of the Dollar and a headwind for risk-sensitive assets.

The FXS Fed Sentiment Index rose by 0.34 points to 137.91, keeping the gauge firmly in hawkish territory well above the neutral 100 mark and consistent with the elevated FXS Speechtracker reading. This combination of a higher index level and a strong speech score signals that Fed communication is tilting more decisively toward sustained tightening resolve, a backdrop that should continue to underpin the Dollar against lower-yielding peers.

Technical Analysis: AUD/USD remains capped under the 100-day SMA

In the daily chart, AUD/USD holds a bearish near-term bias as spot remains below both the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle SMA, keeping the broader topside structure intact as resistance. The Relative Strength Index (14) at 36.6 stays just above oversold territory, hinting at persistent selling pressure rather than a clear exhaustion of the downtrend.

On the topside, initial resistance emerges in a tight cluster around the Bollinger middle band at 0.7050 and the 100-day SMA at 0.7055, with a more distant barrier at the Bollinger upper band near 0.7205. On the downside, the Bollinger lower band at 0.6895 offers the next notable support, and a decisive break beneath this floor would likely open the way for an extension of the current bearish sequence.

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

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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