Key Moments
- AUD/USD trades near 0.7120 in Wednesday’s Asian session as expectations for a U.S. rate hike support the USD.
- Futures imply a 92.4% probability of a 25 bp Fed hike and a 78% chance of an RBA move to 4.60% at its next meeting.
- Aussie 10-year yields jump 8 bp to 5.41% amid a broader global bond sell-off.
Fed Expectations Pressure AUD/USD
AUD/USD trades on the back foot around 0.7120 during Asian hours on Wednesday, extending its move below 0.7150 as investors await the latest decision from the U.S. Federal Reserve. Anticipation of higher U.S. interest rates is lending support to the U.S. Dollar (USD), weighing on the Australian Dollar (AUD) in the process.
Positioning in interest rate futures reflects strong conviction that the Fed will raise its benchmark rate at its policy meeting on Wednesday. According to the CME FedWatch tool, markets are assigning a 92.4% probability that the central bank will deliver a 25 basis point (bp) increase.
“A 25 basis-point increase is about 90% priced, implying the dollar will receive a modest boost if the Fed increases,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia in Sydney.
Following the decision, Fed Chair Kevin Warsh is scheduled to hold a press conference. Any indication that the Fed is reluctant to consider additional tightening could drag on the Greenback in the short term, while more aggressive rhetoric from policymakers would likely support further USD gains against the AUD.
RBA Outlook and Domestic Drivers for the Aussie
On the domestic side, the Reserve Bank of Australia (RBA) has left the Official Cash Rate (OCR) unchanged at 4.35% after implementing three straight hikes earlier in the year. Persistent underlying inflation is keeping expectations alive for renewed tightening by the Australian central bank.
Pricing captured by the RBA Rate Tracker indicates that market participants now see a 78% chance that the OCR will be raised to 4.60% at the upcoming RBA Board meeting.
| Central Bank | Current Policy Rate | Next Move Priced | Implied Probability |
|---|---|---|---|
| Federal Reserve | Not specified | +25 bp at September meeting | 92.4% |
| Reserve Bank of Australia | 4.35% OCR | Increase to 4.60% | 78% |
Bond Market Moves: Aussie Yields Track Global Sell-off
The sell-off in sovereign debt globally has extended into Australian markets. Analysts at Societe Generale highlight that Australian 10-year yields have surged in response to moves in core markets, stating that “Aussie 10y yields leapt 8bp to 5.41% after the melt-up in the US above 5%.”
They note that “Treasuries have been stretched since yields crossed the 4.90% level last week,” and add that for German bonds, “for the Bund, the equivalent was 3.30%,” underscoring the speed and scale of recent shifts in key bond benchmarks.
Technical Picture: AUD/USD Maintains Near-Term Constructive Tone
From a technical standpoint, AUD/USD is still holding above the 100-day simple moving average (SMA) on the daily chart, as well as above the lower Bollinger Band. This configuration suggests the broader structure remains constructive even as the pair has retreated from recent highs.
The Relative Strength Index (RSI) is hovering near 47, moving back toward neutral territory. This points to a reduction in upside momentum, but not yet to a clear bearish signal.
On the resistance side, the Bollinger middle band, which aligns with the 20-day SMA, is located near 0.7170 and represents the first significant barrier. If buyers regain control, the upper Bollinger Band around 0.7230 is the next potential cap.
Immediate support is clustered around 0.7125, close to current trading levels. Below that, the lower Bollinger Band at 0.7108 is the next area of interest, and a break through this zone would expose the 100-day SMA at 0.7080 as a key downside level.
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