Hotter inflation revives RBA tightening bets as Australian Dollar edges higher

• 0.08% is the Australian Dollar's gain on Friday, as expectations of further Australian monetary tightening lend support.
• 4.3% was Australia's September inflation rate, an acceleration that strengthened expectations of a November interest rate rise.
• With inflationary pressures persisting, Fed policymakers remain cautious as the central bank leaves interest rates unchanged.

0.08% is AUD/USD's daily advance on Friday. The pair trades around 0.7035 at the time of writing, with the Australian Dollar (AUD) supported by mounting expectations that the Reserve Bank of Australia (RBA) will raise interest rates. Stronger-than-forecast inflation and recent hawkish comments from central bank officials have reinforced that outlook.

Wednesday's release from the Australian Bureau of Statistics (ABS) put September Consumer Price Index (CPI) inflation at 4.3% YoY. That exceeded the 4.2% market forecast and marked an acceleration from August's 4%. The renewed pick-up heightens concerns over persistent price pressures, leaving the RBA less scope to hold monetary policy steady.

Speculation about a further rate rise at the November 3 monetary policy meeting has also gathered pace following comments from RBA Governor Michele Bullock. In a hawkish assessment, she signalled that the inflationary pressures troubling the central bank were starting to materialise.

Markets now assign an 80% probability to a rate increase to 4.85% at the forthcoming meeting, according to the ASX RBA Rate Tracker. Before the inflation release, that probability stood at 60%. The repricing supports the Australian Dollar as investors increasingly expect Australian interest rates to stay high for longer.

Uncertainty over the Federal Reserve (Fed) policy outlook, meanwhile, confronts the US Dollar (USD). The central bank kept its benchmark rate in the 3.75%-4.00% range on Wednesday, stressing that forthcoming economic data would be central to its next policy decisions.

Inflation risks remain under close scrutiny by Fed officials. Richmond Fed President Thomas Barkin said on Friday that a gradual approach to interest rates was still appropriate. While the broad direction of monetary policy was relatively clear, he identified the pace of adjustment as the main question.

Increasingly widespread cost pressures are leading US businesses to raise prices, Barkin added. He singled out the surge in artificial intelligence investment as another source of inflationary pressure, pointing to its effects on supply chains and aggregate demand.

Persistent inflation could therefore keep the Fed cautious, as these comments suggest. Even so, expectations of tighter Australian monetary policy continue to underpin AUD/USD. Investors are now focusing on next week's RBA policy decision.

AUD/USD technical outlook

At 0.7035 on the one-hour chart, AUD/USD retains a modestly bullish short-term bias. Consolidation is taking place above both the 100-period simple moving average (SMA) at 0.7032 and the 200-period SMA at 0.7026, as the pair approaches the nearby horizontal resistance at 0.7040. A Relative Strength Index (14) reading around 52 indicates consistent buying interest without signs of overextension. This suggests pullbacks may draw demand provided the price stays above the underlying moving-average support.

A move higher would first encounter resistance at 0.7040, followed by 0.7055 and a more substantial barrier near 0.7068. Support starts at the 100-period SMA of 0.7032, with the 200-period SMA at 0.7026 next. Should corrective pressure build, the horizontal levels at 0.7010 and 0.6994 provide deeper support.

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