Why is the Australian Dollar outperforming as hot CPI data strengthens hawkish RBA expectations?

• Australian Dollar advances as prospects of an RBA rate increase in November strengthen.
• Expectations of an RBA interest rate hike have strengthened following elevated Australian CPI readings for Q3 and September.
• Expectations point to the Fed keeping borrowing costs steady within the 3.75%-4.00% band.

Broad gains against major peers mark Wednesday’s trading in the Australian Dollar (AUD). The currency stands 0.15% higher against the US Dollar (USD), near 0.7035, even after recovering some of its earlier losses.

Support for the Australian currency comes from growing expectations that the Reserve Bank of Australia (RBA) will raise interest rates further in the near term. Elevated Consumer Price Index (CPI) readings for September and the third quarter of this year have reinforced those expectations.

Monthly CPI growth accelerated to 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 April-June.

Could firmer inflation prompt a final RBA hike? TD Securities weighs in

A further rate increase at next week’s Reserve Bank of Australia meeting is now expected by TD Securities, which forecasts that the RBA will “lift the cash rate 25bps … to 4.85%.” In the strategists’ assessment, “the firmer Q3 CPI outcome validates the Bank's decision to hike last month,” while “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 apparently approaching its conclusion, TD Securities says this “hike should mark the last in the cycle,” suggesting that the cycle is nearing its end.

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

Will a Fed pause come with a hawkish message? Deutsche Bank’s outlook

With “futures are pricing less than a 10% chance of a hike,” economists at Deutsche Bank expect no change in Fed monetary policy at today’s meeting. They nevertheless anticipate a distinctly hawkish tone in the communication: the “broader message” is likely to emphasise that “recent inflation data support the case for further tightening over time.” Against that backdrop, the team at Deutsche Bank continues to “foresee 50bp of further hikes across December and March,” supporting expectations that additional tightening will remain an option for the Fed despite a pause for now.

AUD/USD Technical Outlook: Can the Recovery Hold?

A mildly bullish near-term outlook remains in place on the daily AUD/USD chart, with the pair trading at 0.7038 above its 20-period Exponential Moving Average (EMA) of 0.7009. As it seeks to extend the rebound from last week’s lows, the Relative Strength Index (RSI) is hovering around 54 in neutral-positive territory. This suggests that upward momentum remains constructive without becoming overstretched.

The psychological 0.7038 zone offers initial support; a break below would bring the dynamic support of the 20-day EMA at 0.7009 into focus. Pullbacks are likely to be regarded as corrections within an emerging recovery while the price stays above this moving average. A daily close below it, however, would weaken the positive tone and leave room for a deeper retracement.

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