RBA rate hike expectations drive further Australian Dollar gains ahead of Fed decision

• Expectations of higher Australian interest rates support the Australian Dollar, which advances 0.20% against the US Dollar on Friday.
• October saw US manufacturing activity climb to a 53-month high, beating market forecasts.
• With inflation risks under scrutiny, investors expect the Fed to leave interest rates on hold on Wednesday.

Despite strong economic data from the United States (US), expectations of further monetary tightening by the Reserve Bank of Australia (RBA) keep the Australian Dollar (AUD) slightly ahead of the US Dollar (USD). AUD/USD adds to its gains on Friday, standing at around 0.7035 at the time of writing, a rise of 0.20% on the day.

Persistent inflationary pressures have fuelled expectations that the RBA could deliver another interest rate rise this year, lending support to the Australian Dollar. As investors weigh the two countries’ diverging monetary policy paths, that prospect enhances the Australian currency’s appeal.

In the US, private-sector activity remained resilient, according to preliminary figures published on Friday by S&P Global. October’s Manufacturing Purchasing Managers Index (PMI) increased to 56 from September’s 55.9, surpassing the market forecast of 55.6 to reach a 53-month high.

Services PMI slipped from 58.8 in September to 57.9, matching forecasts. Combining services and manufacturing activity, the Composite PMI also lost pace, falling from 58.4 to 57.6. Nevertheless, the reading remains comfortably above 50, the threshold between expansion and contraction.

Wednesday’s Fed monetary policy decision is now the focus for investors. Expectations are widespread that the US central bank will hold interest rates within the 3.75%-4.00% range.

December’s policy outlook is less clear. According to the CME FedWatch Tool, markets assign an approximately 80% probability to another interest rate rise, against a backdrop of inflation risks associated particularly with oil prices.

The policy statement and Fed Chair Kevin Warsh’s remarks at the press conference that follows will therefore attract close scrutiny. With no updated economic projections due, his comments could offer significant guidance on the direction of US interest rates and affect how the US Dollar performs against the Australian Dollar.

AUD/USD technical analysis points to a modest bullish bias

Holding above its 100-period simple moving average (SMA) at 0.7009 and 200-period SMA at 0.6985, AUD/USD retains a modest bullish bias on the one-hour chart, trading at 0.7034. The pair is edging upwards towards a nearby supply zone. Meanwhile, a Relative Strength Index (14) reading of around 63 indicates that bullish momentum is building, although it has yet to enter overbought territory.

The first resistance level lies at 0.7037, followed by a higher horizontal ceiling at 0.7045, where buying momentum could begin to weaken. Immediate downside support sits at the 100-period SMA of 0.7009. Below that, a horizontal floor at 0.6994 precedes deeper structural support near the 200-period SMA of 0.6985.

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