RBA rate hike expectations lift Australian Dollar further ahead of Fed decision

• A 0.20% rise puts the Australian Dollar ahead of the US Dollar on Friday, as expectations of higher Australian interest rates provide support.
• A 53-month high in October US manufacturing activity surpassed market forecasts.
• With inflation risks in focus, investors expect the Fed to leave interest rates on hold on Wednesday.

AUD/USD is up 0.20% on Friday. The pair extends its advance to around 0.7035 at the time of writing. Despite strong economic releases from the United States (US), expectations of additional monetary tightening by the Reserve Bank of Australia (RBA) keep the Australian Dollar (AUD) modestly ahead of the US Dollar (USD).

Persistent inflationary pressure has fuelled expectations that the RBA could deliver another interest rate increase this year, lending support to the Australian Dollar. The prospect enhances the currency's appeal as investors weigh the two countries' diverging monetary policy paths.

Resilient US private-sector activity was confirmed by Friday's preliminary figures from S&P Global. October's Manufacturing Purchasing Managers Index (PMI) climbed to 56, compared with 55.9 in September and a market forecast of 55.6. The reading marked a 53-month high.

Services PMI slipped from September's 58.8 to 57.9, matching forecasts. Combining manufacturing and services activity, the Composite PMI also moderated, registering 57.6 after 58.4 previously. Even so, it stayed comfortably above 50, the dividing line between expansion and contraction.

Wednesday's Fed monetary policy decision is now the focus for investors. Expectations widely point to the US central bank holding interest rates within the 3.75%-4.00% range.

December's policy outlook is less certain, however. According to the CME FedWatch Tool, markets assign an approximately 80% probability to another interest rate increase, with inflation risks tied particularly to Oil prices in focus.

The policy statement and Fed Chair Kevin Warsh's comments at the subsequent press conference will therefore draw close scrutiny. With no updated economic projections due, his remarks could offer significant signals on the future course of US interest rates and shape the US Dollar's performance relative to the Australian Dollar.

AUD/USD technical outlook

At 0.7034 on the one-hour chart, AUD/USD retains a mildly bullish bias above its 100-period simple moving average (SMA) of 0.7009 and 200-period SMA of 0.6985. The pair is edging upwards towards nearby overhead supply. A Relative Strength Index (14) reading around 63 points to firmer bullish momentum, though it has yet to enter overbought territory.

Initial upside resistance stands at 0.7037, followed by a higher horizontal barrier at 0.7045, where buying pressure could begin to weaken. Immediate downside support comes from the 100-period SMA at 0.7009. Below that, a horizontal floor at 0.6994 precedes deeper structural support near the 200-period SMA at 0.6985.

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