Hot CPI strengthens hawkish RBA expectations, driving Australian Dollar outperformance

• Australian Dollar advances as expectations strengthen for an RBA interest rate increase in November.
• Stronger Australian CPI readings for Q3 and September have increased expectations of an RBA interest rate rise.
• An unchanged stance is expected from the Fed, keeping borrowing costs within the 3.75%-4.00% range.

A 0.15% gain puts the Australian Dollar (AUD) near 0.7035 against the US Dollar (USD). The currency is sharply higher against its major peers on Wednesday, even after giving back some of its early losses against the USD.

Stronger Consumer Price Index (CPI) readings for September and this year’s third quarter have boosted expectations of further near-term interest rate increases by the Reserve Bank of Australia (RBA), supporting the Australian currency.

Monthly CPI growth reached 0.8%, exceeding the 0.7% forecast and 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 in the April-June period.

4.85% Cash Rate Expected: TD Securities Sees Final RBA Hike

A further rate rise at next week’s Reserve Bank of Australia meeting is now expected by TD Securities. Its forecast is for the RBA to “lift the cash rate 25bps … to 4.85%.” The strategists say “the firmer Q3 CPI outcome validates the Bank's decision to hike last month,” adding that “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.” With the tightening phase appearing close to completion, TD Securities says this “hike should mark the last in the cycle,” suggesting the cycle is nearing its end.

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

50bp More Ahead: Deutsche Bank Sees Hawkish Fed Hold

An unchanged policy decision at today’s Fed meeting is the expectation of Deutsche Bank economists, who note that “futures are pricing less than a 10% chance of a hike.” The accompanying communication, however, is expected to be distinctly hawkish. They believe the “broader message” will probably emphasise that “recent inflation data support the case for further tightening over time.” Deutsche Bank’s team therefore continues to “foresee 50bp of further hikes across December and March,” supporting expectations that further tightening will remain an option for the Fed despite a pause for now.

0.7038: AUD/USD Technical Outlook

At 0.7038 on the daily chart, AUD/USD retains a modestly bullish near-term outlook. Spot is holding above the 20-period Exponential Moving Average (EMA) of 0.7009 as the pair seeks to extend its recovery from last week’s lows. Around 54, the Relative Strength Index (RSI) remains in neutral-positive territory, suggesting positive upside momentum without signs of overextension.

The psychological 0.7038 area provides initial downside support. A break would bring the dynamic support of the 20-day EMA at 0.7009 into focus. While the pair remains above that moving average, declines are likely to be regarded as corrections within an emerging recovery. A daily close below it, however, would weaken the positive bias and leave scope for a deeper retracement.

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