Hot CPI lifts Australian Dollar to new one-month high; stronger USD restrains gains ahead of FOMC

• AUD/USD extends its advance into a second consecutive day, but follow-through remains limited.
• Stronger-than-expected Australian CPI bolsters expectations of an RBA rate rise, lending support to the AUD.
• A two-week high for the USD restrains the pair as the pivotal FOMC decision approaches.

Stronger-than-expected Australian consumer inflation figures lifted AUD/USD towards 0.7050-0.7055 in Wednesday's Asian session, its highest level since 23 September, as buyers returned for a second consecutive day. The pair now appears to have broken above pivotal resistance at the 100-day Simple Moving Average (SMA). However, bullish traders may hold off on aggressive positions until the two-day FOMC meeting concludes.

September's headline Consumer Price Index (CPI) increased by 0.8%, the Australian Bureau of Statistics (ABS) reported, exceeding both the previous month's 0.4% rise and the consensus forecast of 0.7%. Annual inflation also picked up, reaching 4.3% from 4.0% in August, against expectations of 4.2%. Meanwhile, annual trimmed mean inflation stayed above the Reserve Bank of Australia's (RBA) 2-3% target range. That reinforced expectations of an imminent interest rate rise in November, giving the Australian Dollar (AUD) a modest lift.

Gains in AUD/USD are nevertheless being constrained by the US Dollar (USD), which has reached a two-week high. Markets increasingly accept that the Federal Reserve (Fed) will raise borrowing costs again before year-end, given the inflation risks posed by elevated oil prices. Ongoing geopolitical uncertainty is also supporting the safe-haven dollar, helping it advance for a fourth consecutive day. Attention now turns to the keenly awaited FOMC interest rate decision, scheduled for later in the US session, as a key influence on demand for the USD.

With the US central bank widely expected to keep interest rates on hold, investors will examine its accompanying policy statement and Fed Chair Kevin Warsh's remarks at the subsequent press conference for further indications of the policy outlook. Until then, the supportive fundamentals outlined above appear to favour AUD/USD bulls. This suggests that any sizeable corrective decline is more likely to attract buyers and prove limited.

AUD/USD holds above moving average on the daily chart

Technical Outlook: AUD/USD Recovery Meets Resistance

A closely grouped band of Fibonacci retracement levels is limiting AUD/USD's upside as the pair trades just above its 100-day Simple Moving Average (SMA). Momentum behind the rebound from recent lows is fading, with the price remaining beneath the 50% retracement at 0.7066 and the 61.8% retracement at 0.7106. Despite nearby moving average support, the broader outlook therefore remains neutral to slightly bearish.

The first downside support lies at 0.7033, the 100-day SMA, with the 38.2% retracement at 0.7025 adding strength to that area. Should this support cluster give way, the 23.6% retracement at 0.6975 would come into view, followed by the risk of a deeper decline towards the structural base near 0.6893.

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