Why is the Australian Dollar pulling back from its recent peak as RBA hike odds rise ahead of CPI?

• Despite a 0.24% decline on Monday, the Australian Dollar remains above 0.7000 after touching a one-month high.
• The Aussie's losses could be contained as expectations build for another Australian interest rate hike.
• Markets turn their attention to Wednesday's Australian inflation data and the Federal Reserve's monetary policy announcement.

Caution ahead of this week's major economic events is weighing on AUD/USD, which has pulled back from a one-month high reached earlier on Monday. At the time of writing, the pair trades near 0.7015, a decline of 0.24% for the day.

With expectations building for the Reserve Bank of Australia (RBA) to raise interest rates again at its upcoming November monetary policy meeting, the Australian Dollar (AUD) could find support.

Recent hawkish remarks by RBA Assistant Governor Sarah Hunter have reinforced those expectations. Warning that inflation was not yet fully under control, she signalled that additional rate increases might be needed, particularly given the risk that international inflationary pressures could become embedded in Australia's economy.

Wednesday's Australian Consumer Price Index (CPI) release is therefore a key focus for investors. An upside inflation surprise could strengthen the case for further RBA tightening and lend the Australian Dollar additional support. A more pronounced easing in price pressures, by contrast, could reduce expectations of a rate hike and put the currency under pressure.

Demand for the US Dollar (USD) is being restrained by falling US Treasury bond yields and hopes that Middle East tensions will ease. As a result, the Greenback is finding it difficult to build on Friday's modest rebound from a three-week low. Geopolitical uncertainty nevertheless persists, leaving scope for a fresh rise in safe-haven demand for the US Dollar.

Also in focus is the Federal Reserve's (Fed) monetary policy announcement on Wednesday, at the conclusion of the two-day Federal Open Market Committee (FOMC) meeting. The central bank's signals on the future course of interest rates will be scrutinised by investors.

Thursday adds to a packed US economic calendar with the advance estimate of third-quarter Gross Domestic Product (GDP) and the Personal Consumption Expenditures (PCE) Price Index. The latter is a key measure of inflation watched closely by the Fed.

With the contrasting monetary policy outlooks for Australia and the US still in focus, these data releases could alter expectations for US interest rates and spark fresh volatility in AUD/USD.

Could the RBA hike in November as TD flags a hawkish shift?

TD Securities had maintained its forecast of no further rate increases this year in commentary following the Minutes of the RBA’s September meeting. Even so, it says markets had been “under-priced for the risk of a follow-up hike”. A distinct change in tone emerged when TD’s team returned to the office and “listened to the Deputy Governor's fireside chat from last week and there is no confusion here - his comments were hawkish,” according to the bank.

The sequence of the remarks is important to TD's assessment of policy risks ahead of the next meeting. It emphasises that “the Deputy Governor's hawkish comments last week preceded this week's Q3 CPI,” adding that “the timing of this hawkish commentary runs counter to his hawkish commentary in March of this year and earlier last month that were delivered after strong data outcomes.” In TD's view, this timing materially alters the meeting's policy risk profile.

For the inflation release, TD Securities says it “forecast Q3 quarterly trimmed mean to print 0.92% q/q, above the Bank's 0.85% forecast.” Its assessment is that, “theoretically, this should be enough for the Bank to remain on hold at its November meeting given the Bank's decision to hike at its September meeting.” Nonetheless, the bank argues that “Deputy Governor Hauser's comments detailed above open up the real possibility the Bank uses its updated set of inflation forecasts in its November Statement on Monetary Policy to hike at that meeting.” TD therefore concludes that “odds of the RBA hiking should be above 60% the market has currently priced.”

AUD/USD technical analysis: Can the broader uptrend withstand the pullback?

Near-term upside remains modestly constrained on the one-hour chart, where AUD/USD trades at 0.7018. The pair sits beneath both the 100-period simple moving average (SMA) at 0.7020 and horizontal resistance at 0.7040, while remaining above the longer-term 200-period SMA at 0.6990. With the Relative Strength Index (14) close to 41, bullish momentum appears to be weakening, suggesting a corrective bias within an otherwise intact broader uptrend.

Buyers face immediate resistance at the 100-period SMA of 0.7020, followed by a firmer hurdle at 0.7040. A sustained move above both would relieve the prevailing selling pressure and clear the way for higher highs on the hourly chart. Below the current price, the first support lies at 0.7013. The horizontal floor at 0.6994 and the 200-period SMA at 0.6990 follow, together forming an important demand zone for buyers to defend.

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