0.6900 in sight as Australian Dollar weakens amid rising Fed rate hike expectations

• Renewed US Dollar strength pushes the Australian Dollar lower on Tuesday, reversing part of Monday's advance.
• Expectations for a further December interest rate increase strengthen following hawkish remarks by Federal Reserve officials.
• A smaller Chinese trade surplus weighs on the Aussie as investors look ahead to key US inflation figures.

0.6905 is the level for AUD/USD on Tuesday at the time of writing. The pair is down 0.31% on the day, with the Australian Dollar (AUD) surrendering some of Monday's strong recovery against the US Dollar (USD). Expectations of additional Federal Reserve (Fed) monetary tightening continue to weigh on the Aussie. Disappointing trade figures from China also dampen sentiment.

October's trade surplus in China, Australia's biggest trading partner, fell to $105.28 billion from September's $133.53 billion. The latest reading was below the $125.8 billion anticipated by markets.

Annual growth in Chinese exports and imports continued despite the smaller surplus, pointing to resilient external trade activity. Even so, the headline miss offers little support to the Australian Dollar.

An increasingly hawkish view of the Fed's policy outlook is supporting the US Dollar. The CME FedWatch tool now puts the market-implied probability of a 25-basis-point December rate increase at approximately 99%, compared with 84% a day earlier.

These expectations received further backing on Tuesday from Fed Governor Christopher Waller, who said: “We need to raise rates to put downward pressure on inflation.” Waller also acknowledged that monetary policy had proved less restrictive than previously anticipated.

Tuesday's US Consumer Price Index (CPI) release is now the focus for investors. Forecasts put October's headline inflation increase at 0.3% MoM, against 0.6% in September. Core CPI is expected to rise 0.2%, compared with the previous 0.3%.

An upside inflation surprise could strengthen expectations for further Fed tightening, lending additional support to the Greenback and potentially deepening AUD/USD's losses. A softer reading, by contrast, could weigh on the US Dollar and allow the Aussie to recoup part of its recent decline.

AUD/USD technical outlook

0.6906 is AUD/USD's trading level on the daily chart. The near-term outlook remains bearish, with spot firmly below both the 100-day simple moving average (SMA) at 0.7028 and the 200-day SMA at 0.7056. Failure to regain these medium-term averages indicates that rallies remain constrained for now. At around 40, the Relative Strength Index (14) points to muted momentum, more consistent with a modest recovery than a lasting uptrend.

Selling pressure could return if the pair cannot hold above 0.6894, leaving the recent low near 0.6855 exposed. Below that level, attention would shift back to March's low of 0.6834. A clear break through this support could confirm a more extended bearish move.

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