Australian Dollar posts modest gains above 0.7050 as hot CPI bolsters RBA rate hike bets

• Around 0.7055, AUD/USD edges upwards during Asian trading on Thursday.
• Stronger-than-expected CPI figures had lifted the market-implied probability of an RBA rate rise to 82%.
• Wednesday saw the Fed leave its benchmark rate on hold, while Warsh gave no clear indication of a December move.

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

Headline Consumer Price Index (CPI) inflation in Australia reached 4.3% year on year in September, up from 4.0% in August, according to figures published by the Australian Bureau of Statistics on Wednesday. The reading exceeded the market forecast of 4.2%. Monthly CPI inflation also picked up, reaching 0.8% in September against 0.4% in the preceding reading.

The stronger figures lend support to the Aussie by reinforcing the case for a rate increase at the forthcoming RBA 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 presented an improved assessment of the economy, while recognising that inflation “remains elevated.”

At the press conference, Fed Chairman Kevin Warsh refrained from giving guidance on the outlook, although he acknowledged that price stability had yet to be achieved. Warsh said: "We're working on it," while the CME FedWatch tool indicated that traders were assigning a 78% probability to a December rate rise.

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,"

Aussie gains support as Australian inflation surprise strengthens RBA rate-rise bets

The latest Australian inflation figures, according to strategists at Brown Brothers Harriman, “beat expectations, strengthening the case for another RBA hike and underpinning AUD.” They observe that September’s headline CPI “rose 4.3% y/y (consensus: 4.2%) vs. 4.0% in August reflecting rising housing and transport costs,” with price pressures consequently exceeding the central bank’s expectations.

In BBH’s assessment, “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 argue that “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 notes 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.

Warsh highlights investment growth and AI risks without committing to a rate path

A score of 5.6/10 on the FXS Speechtracker places Fed Chair Warsh’s speech modestly below the historical average of 6.1/10. The reading signals a cautious tone, notwithstanding positive remarks on structural growth and a surge in investment. His reference to being “over-scarred from the global financial crisis” points to a lasting awareness of risk that moderates his optimism. Although Warsh identifies AI and investment as important sources of upside, his repeated refusal to prejudge the October and December meetings deliberately leaves rate expectations unclear. Taken together, the remarks strike a balance: they support continued growth and AI-led productivity gains, but the focus on financial stability and tail risks offers little fresh hawkish impetus for the Dollar.

With a move of 0.00 points, the FXS Fed Sentiment Index held at an elevated 127.51. This suggests that perceptions of the policy stance remained firmly hawkish after the speech, even without further signals of tightening. Alongside the slightly below-baseline FXS Speechtracker score, the unchanged index indicates that the Dollar retained its existing hawkish premium, though Warsh’s appearance did little to strengthen it.

Technical Analysis: AUD/USD maintains a bullish bias above the 100-day SMA

Trading above both the 100-day simple moving average (SMA) and the middle Bollinger band, AUD/USD retains a modestly bullish short-term outlook on the daily chart. Those positions point to a constructive underlying trend following the recent rebound from below 0.70. At 57, the Relative Strength Index (RSI) remains positive without reaching overbought territory, suggesting that upward momentum is strengthening but is not yet stretched.

The upper Bollinger band around 0.7065 provides the first resistance, with the current rise beginning to encounter selling pressure there. Initial support lies at the 100-day SMA of 0.7035, ahead of the middle Bollinger band near 0.6990. Should the pullback deepen, stronger demand 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.)