Australian Dollar extends gains on RBA rate hike expectations ahead of Fed decision

• The Australian Dollar gains 0.20% against the US Dollar on Friday, supported by expectations of higher interest rates in Australia.
• US manufacturing activity reached its highest level in 53 months in October, exceeding market expectations.
• Investors anticipate the Fed will keep interest rates unchanged on Wednesday, while monitoring inflationary risks.

AUD/USD extends its gains on Friday, trading around 0.7035 at the time of writing, up 0.20% on the day. The Australian Dollar (AUD) maintains a slight advantage against the US Dollar (USD), supported by expectations of further monetary tightening by the Reserve Bank of Australia (RBA), despite the release of strong economic data in the United States (US).

The Australian Dollar benefits from expectations that the RBA could raise interest rates again this year, amid persistent inflationary pressures. This outlook supports the appeal of the Australian currency as investors assess the diverging monetary policy trajectories of the two countries.

On the US side, preliminary data released by S&P Global on Friday confirms the resilience of private-sector activity. The Manufacturing Purchasing Managers Index (PMI) rose to 56 in October from 55.9 in September, exceeding market expectations of 55.6 and reaching its highest level in 53 months.

In the services sector, the PMI eased to 57.9, in line with forecasts, following September's reading of 58.8. Meanwhile, the Composite PMI, which combines manufacturing and services activity, slowed to 57.6 from 58.4 previously. However, it remains well above the 50 threshold separating expansion from contraction.

Investors now turn their attention to the Fed's upcoming monetary policy decision, scheduled for Wednesday. The US central bank is widely expected to leave interest rates unchanged in the 3.75%-4.00% range.

However, the outlook for December remains more uncertain. Markets are pricing in an approximately 80% chance of another interest rate hike, according to the CME FedWatch Tool, amid inflationary risks linked in particular to Oil prices.

Attention will therefore focus on the monetary policy statement and comments from Fed Chair Kevin Warsh during the subsequent press conference. In the absence of updated economic projections, his remarks could provide important clues about the future path of US interest rates and influence the US Dollar's performance against the Australian Dollar.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7034, keeping a modest bullish bias as it holds above the 100-period simple moving average (SMA) at 0.7009 and the 200-period SMA at 0.6985. The pair is grinding higher toward nearby overhead supply, while the Relative Strength Index (14) around 63 suggests strengthening bullish momentum without yet reaching overbought territory.

On the topside, initial resistance emerges at 0.7037, ahead of a higher horizontal cap at 0.7045, where buying pressure could start to fade. On the downside, immediate support is located at the 100-period SMA at 0.7009, followed by a horizontal floor at 0.6994, with deeper structural support coming in 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.)