Near one-month highs: Australian Dollar steadies as CPI and Fed take focus

Hawkish RBA expectations underpin the Aussie, lifting AUD/USD slightly despite US Dollar strength.
Wednesday’s Australian inflation figures could reinforce expectations for a further RBA rate increase.
RBA Governor Bullock’s testimony and the Fed’s interest rate announcement are also on traders’ radar.

AUD/USD trades around 0.7027 at the time of writing. The pair is edging up on Tuesday, close to one-month highs, as hawkish expectations for the Reserve Bank of Australia (RBA) drive the Australian Dollar (AUD) ahead of its major peers. Easing concerns about heavy AI expenditure have helped equities recover, providing further support for the risk-sensitive Aussie. A stronger US Dollar (USD), however, caps the pair’s gains.

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

Wednesday brings Australia’s inflation release and parliamentary testimony from RBA Governor Michele Bullock. Traders will use both to assess the outlook for the RBA’s November interest rate decision. Later that day, the Federal Reserve’s (Fed) monetary policy announcement presents a further key test for AUD/USD.

A 0.7% monthly increase in Australia’s headline Consumer Price Index (CPI) is expected for September, compared with 0.4% in August. That would lift annual inflation from 4.0% to 4.2%. For the third quarter, inflation is forecast at 1.3%, accelerating from 0.6% in the second quarter.

For an indication of underlying price pressures, traders will scrutinise trimmed mean inflation. Following August’s 0.2% increase, the monthly measure is expected to advance 0.3% in September.

According to Elias Haddad of Brown Brothers Harriman, the forthcoming inflation readings “would leave inflation above the RBA’s year-end forecasts of 3.6% for headline and 3.3% for trimmed mean,” supporting Deputy Governor Andrew Hauser’s recent warning that the inflation outlook is “materially worse” than assessed in August. As BBH also notes, “firmer inflation would also strengthen the case for a back-to-back 25bps RBA cash rate hike to 4.85% at the next November 3 meeting (70% pried in) and widen AUD’s yield advantage.”

The US Dollar Index (DXY) is trading around 102.25, close to two-week highs. Measuring the Greenback against a basket of six major currencies, the index reflects an extension of the US Dollar’s rebound. Its earlier weakness came as AI-related equity concerns prompted investors to buy government bonds, driving Treasury yields down.

Positioning ahead of the Fed’s interest rate announcement is supporting the recovery. After September’s increase of 25 basis points (bps), policymakers are widely expected to hold rates at 3.75%-4.00%. Attention therefore turns to the policy statement and Chair Kevin Warsh’s press conference.

The CME FedWatch Tool currently puts the priced-in probability of a December rate increase at around 80%. With inflation still above the Fed’s 2% target, traders will look for signals that policymakers either bolster or moderate those expectations.

US Dollar: Today’s Currency Performance

The US Dollar recorded its strongest performance against the Euro today. The table below details the percentage changes in the US Dollar (USD) against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.31%	0.20%	0.25%	0.24%	-0.20%	-0.06%	0.10%
EUR	-0.31%		-0.10%	-0.05%	-0.06%	-0.51%	-0.39%	-0.20%
GBP	-0.20%	0.10%		0.04%	0.04%	-0.41%	-0.28%	-0.10%
JPY	-0.25%	0.05%	-0.04%		-0.01%	-0.46%	-0.32%	-0.17%
CAD	-0.24%	0.06%	-0.04%	0.00%		-0.44%	-0.32%	-0.14%
AUD	0.20%	0.51%	0.41%	0.46%	0.44%		0.14%	0.30%
NZD	0.06%	0.39%	0.28%	0.32%	0.32%	-0.14%		0.18%
CHF	-0.10%	0.20%	0.10%	0.17%	0.14%	-0.30%	-0.18%

To read the heat map of percentage changes between major currencies, select the base currency in the left-hand column and the quote currency in the top row. For instance, choosing the US Dollar on the left and following its row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.