Hot CPI bolsters hawkish RBA expectations as Australian Dollar outperforms

• Australian Dollar advances amid rising expectations of an RBA interest rate rise in November.
• Strong Australian CPI readings for Q3 and September have strengthened expectations of RBA interest rate increases.
• The Fed is expected to hold borrowing costs steady within the 3.75%-4.00% range.

A 0.15% rise against the US Dollar (USD) puts the Australian Dollar (AUD) near 0.7035 on Wednesday, even after it recouped some earlier losses. The Australian currency is trading markedly higher against its major peers.

Strong Consumer Price Index (CPI) readings for September and the third quarter of this year have bolstered expectations of further near-term interest rate rises from the Reserve Bank of Australia (RBA), supporting the Australian currency.

Monthly CPI increased by 0.8%, exceeding the 0.7% forecast and accelerating from the previous 0.4% reading. On an annualised basis, inflationary pressures increased by 1.3% QoQ in the third quarter, matching expectations and outpacing the 0.6% rise recorded in April-June.

RBA expected to raise rates once more as TD Securities highlights firmer inflation

Another rate rise is now expected from the Reserve Bank of Australia at next week’s meeting, according to TD Securities, which forecasts that the RBA will “lift the cash rate 25bps … to 4.85%.” In the strategists’ assessment, “the firmer Q3 CPI outcome validates the Bank's decision to hike last month,” while “likely forecast upgrades to the Bank's inflation track in the November Statement on Monetary Policy likely justify a follow-up 25bps hike next week.” The tightening cycle nevertheless appears close to completion: TD Securities says this “hike should mark the last in the cycle,” signalling that the end of the tightening phase is approaching.

Ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT, the US Dollar is holding firm.

Fed expected to hold rates as Deutsche Bank anticipates hawkish guidance

With “futures are pricing less than a 10% chance of a hike.” as their market-pricing observation, Deutsche Bank economists expect no change to Fed monetary policy at today’s meeting. They nonetheless envisage a distinctly hawkish tone in the communication. The “broader message” is likely to emphasise that “recent inflation data support the case for further tightening over time.” Against that backdrop, the Deutsche Bank team continues to “foresee 50bp of further hikes across December and March,” underscoring expectations that further tightening will remain an option for the Fed despite an unchanged decision for now.

AUD/USD Holds a Modestly Bullish Technical Bias

Trading at 0.7038 on the daily chart, AUD/USD retains a modestly bullish short-term bias while the spot price holds above the 20-period Exponential Moving Average (EMA) at 0.7009. An attempt to extend the rebound from last week’s lows is under way. Meanwhile, a Relative Strength Index (RSI) reading of around 54 remains in neutral-to-positive territory, indicating constructive upward momentum without suggesting it is overstretched.

The psychological 0.7038 area provides the first downside support; a breach would bring the dynamic support of the 20-day EMA at 0.7009 into view. Pullbacks are likely to be regarded as corrections within an emerging recovery for as long as the price remains above that moving average. A daily close beneath it, however, would weaken the positive bias and leave scope for a more substantial retracement.

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