Hot CPI boosts RBA rate hike odds, lifting Australian Dollar slightly above 0.7050

• AUD/USD edges up towards 0.7055 during Asian trading on Thursday.
• Stronger-than-expected CPI figures had lifted market-implied odds of an RBA rate hike to 82%.
• Wednesday saw the Fed leave its benchmark interest rate steady, while Warsh gave no firm indication of a December move.

Support for the Australian Dollar (AUD) pushes AUD/USD towards 0.7055 in Thursday’s Asian session, with the currency making modest gains against the US Dollar (USD). Stronger inflation figures have reinforced expectations of rate hikes by the Reserve Bank of Australia (RBA). Attention will turn later on Thursday to the US September Personal Consumption Expenditures (PCE) inflation report.

Figures released on Wednesday by the Australian Bureau of Statistics showed that Australia’s headline Consumer Price Index (CPI) rose 4.3% year-on-year in September, exceeding the market forecast of 4.2% and accelerating from August’s 4.0%. Monthly CPI inflation also picked up, reaching 0.8% in September against 0.4% in the preceding reading.

The stronger inflation reading lends support to the Aussie by reinforcing the argument for an RBA rate increase at its forthcoming meeting. According to the ASX RBA Rate Tracker, markets now assign nearly an 82% probability to a rise in interest rates to 4.85% at the next RBA Board meeting, compared with 62% ahead of the release.

As widely anticipated, the US Federal Reserve (Fed) left its benchmark interest rate at 3.75%-4.00% on Wednesday. Its statement offered an improved assessment of the economy, although the central bank acknowledged that inflation “remains elevated.”

While declining to provide guidance on the outlook at his press conference, Fed Chairman Kevin Warsh acknowledged that price stability had not yet been achieved. Warsh said, "We're working on it," as the CME FedWatch tool put traders’ implied probability of a December hike at 78%.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said: "Warsh's silence on further rate hikes was interpreted as dovish, or not hawkish enough,"

Does Australia’s inflation surprise strengthen the case for an RBA hike and the Aussie?

The latest Australian inflation figures have added to the case for further tightening and supported the currency, according to strategists at Brown Brothers Harriman. They say the data “beat expectations, strengthening the case for another RBA hike and underpinning AUD.” Highlighting September’s headline reading, they note that it “rose 4.3% y/y (consensus: 4.2%) vs. 4.0% in August reflecting rising housing and transport costs,” with price pressures exceeding the central bank’s expectations.

Comparing the figures with the central bank’s earlier projections, BBH emphasises that “inflation is materially worse than the RBA assessed in August, when it forecast year-end headline CPI at 3.6% and trimmed mean at 3.3%.” The strategists believe “this argues for additional tightening,” noting that RBA cash rate futures have “raised odds of a 25bps hike to 4.85% on November 3 from 60% to 85%, and increased bets on another hike in Q1.”

Turning to underlying inflation, BBH observes that “trimmed mean CPI matched consensus at 3.6% y/y up from 3.5% in August.” The strategists nevertheless stress that “the policy-relevant Q3 trimmed mean CPI ran hot at 3.7% y/y (consensus: 3.6%) vs. 3.6% in Q2,” supporting the assessment that underlying price pressures remain uncomfortably high for the RBA.

What do Warsh’s investment and AI remarks signal as he avoids rate commitments?

The Dollar receives little fresh hawkish impetus from Fed Chair Warsh’s speech, which balances optimism about continued growth and AI-led productivity with concerns over financial stability and tail risks. Its FXS Speechtracker score of 5.6/10 is slightly below the historical average of 6.1/10, signalling a cautious overall tone despite positive remarks on structural growth and a surge in investment. His reference to being “over-scarred from the global financial crisis” highlights the enduring awareness of risk that moderates his optimism. At the same time, repeated refusals to prejudge the October and December meetings deliberately leave rate expectations unclear, even as he identifies AI and investment as important sources of upside.

Despite the absence of fresh tightening signals, the perceived policy stance remains firmly hawkish: the FXS Fed Sentiment Index moved 0.00 points, holding at an elevated 127.51. Read alongside the slightly below-baseline FXS Speechtracker score, the unchanged index suggests that the Dollar retains its existing hawkish premium, although Warsh’s appearance did little to strengthen it.

Technical Analysis: Can AUD/USD sustain its bullish bias above the 100-day SMA?

Trading above both the 100-day simple moving average (SMA) and the middle Bollinger band leaves AUD/USD with a modestly bullish near-term outlook on the daily chart. This positioning points to a constructive underlying trend following the recent rebound from below 0.70. At 57, the Relative Strength Index (RSI) remains positive but short of overbought territory, suggesting that upward momentum is strengthening without becoming stretched.

The upper Bollinger band around 0.7065 provides the first resistance, with the current rise beginning to encounter pressure there. Initial downside support lies at 0.7035, the 100-day SMA, ahead of the middle Bollinger band near 0.6990. Should the pullback deepen, stronger buying interest would likely emerge towards the lower Bollinger band around 0.6915.

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