AUD/USD Price Forecast: Hot Aussie CPI Boost Fades, but Pair Stays Above 0.7000 Ahead of Fed

AUD/USD loses momentum after strong Australian CPI data drive the pair to a fresh one-month high.
Upside remains limited as Fed rate-hike expectations and geopolitical concerns support the safe-haven USD.
With the FOMC decision in focus, technical indicators appear to favour AUD/USD bulls.

AUD/USD remains positive for a second consecutive day, although it has surrendered some of the gains that took it to a fresh one-month high during Wednesday's Asian session. The advance followed strong Australian consumer inflation data. The pair is currently trading near 0.7030, with gains of just over 0.10% for the day.

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Support for the Australian Dollar (AUD) came from renewed expectations of an imminent Reserve Bank of Australia (RBA) rate hike in November. According to the Australian Bureau of Statistics (ABS), headline Consumer Price Index (CPI) inflation increased to 4.3% YoY in September from 4.0%, while annual trimmed mean inflation stayed above the RBA's 2-3% target. These figures reinforced rate-hike bets and gave the AUD a sizeable boost. Nevertheless, broad US Dollar (USD) strength is restricting the AUD/USD advance as market participants await the conclusion of the two-day FOMC meeting.

A fourth consecutive day of gains has taken the safe-haven Greenback to a two-week high, limiting further upside in AUD/USD. Ahead of the key central bank decision, investors appear convinced that the US Federal Reserve (Fed) will retain its hawkish stance and increase borrowing costs again before the year-end, given inflation concerns linked to high energy prices. Meanwhile, fears that tensions in the Middle East could escalate further are keeping the geopolitical risk premium in place, providing additional support to the USD.

Above the 38.2% Fibonacci retracement of the September-October decline, the pair continues to show a positive bias. Momentum indicators also point to easing selling pressure: the Moving Average Convergence Divergence (MACD) has moved into positive territory and above its signal line, accompanied by a widening positive histogram. At 53.7, the Relative Strength Index (RSI) is edging higher as well. Even so, bulls have reason to remain cautious, as AUD/USD has been unable to extend its advance above the 100-day Exponential Moving Average (EMA).

For further gains to look convincing, the pair needs to sustain a move above the 100-day EMA and establish acceptance there. That would support a rise towards the 50.0% retracement at 0.7066, followed by the 61.8% level at 0.7106. Further resistance lies at 0.7164 and the swing high of 0.7238. If prices fall, the first support is the 38.2% Fibonacci retracement at 0.7025, followed by the 23.6% level at 0.6975. A more pronounced decline would bring the structural support area around 0.6893 into view.

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

Can AUD/USD sustain its advance? Daily chart

Key questions on the Fed

How does the Federal Reserve's role affect the US Dollar?

The Federal Reserve (Fed) sets US monetary policy with two objectives: maintaining price stability and supporting full employment. Adjustments to interest rates are its main means of pursuing these mandates. If prices climb too rapidly and inflation exceeds the Fed's 2% target, the central bank raises interest rates. Borrowing then becomes more expensive across the economy. Higher rates make the US more appealing to international investors seeking a place for their funds, strengthening the US Dollar (USD). Conversely, inflation below 2% or an excessively high unemployment rate may prompt the Fed to cut interest rates to stimulate borrowing. Such cuts put pressure on the Greenback.

What is the Fed's monetary policy meeting schedule?

At the Federal Reserve's (Fed) eight policy meetings each year, the Federal Open Market Committee (FOMC) reviews the state of the economy and decides on monetary policy. Twelve Fed officials participate in the FOMC: seven Board of Governors members, the president of the Federal Reserve Bank of New York and four presidents drawn from the other eleven regional Reserve Banks. Those four positions rotate, with each president serving a one-year term.

How does Quantitative Easing (QE) work, and what does it mean for USD?

When conditions become extreme, the Federal Reserve may turn to Quantitative Easing (QE), a policy designed to sharply increase credit flows through a stalled financial system. This unconventional measure is used in crises or during periods of exceptionally low inflation. During the Great Financial Crisis in 2008, it was the Fed's preferred policy response. Under QE, the Fed prints additional Dollars to purchase high-grade bonds from financial institutions. The US Dollar typically weakens as a result.

Why does Quantitative Tightening (QT) usually support the US Dollar?

By reversing QE, quantitative tightening (QT) generally supports the US Dollar's value. Under this process, the Federal Reserve ceases bond purchases from financial institutions. It also refrains from reinvesting the principal repaid when bonds in its portfolio mature into new bond purchases.