AUD/USD Reaches 0.6950 but Bearish Structure Holds Firm

Key Moments

Fundamental Drivers

AUD/USD is modestly firmer around 0.6940 in early European trading on Friday, as the pair attempts to stabilize after recent declines. The move comes ahead of key U.S. economic releases and amid rising geopolitical tensions in the Middle East, developments that could fuel caution later in the session.

Investors are focused on U.S. labor market data for September as the next major catalyst. Economists anticipate a moderation in job additions, while the unemployment rate is projected to remain at 4.1% for a third consecutive month. A stronger-than-expected set of figures could bolster the case for additional Federal Reserve tightening and offer further support to the U.S. Dollar.

According to the CME FedWatch tool, markets are currently assigning nearly a 74% probability that the Fed will keep rates unchanged in October, up from 36% one week earlier. However, positioning still reflects expectations for at least one more rate increase before the end of the year.

RBA Expectations Ease as Domestic Data Softens

On the Australian side, the likelihood of a November rate hike by the Reserve Bank of Australia has retreated sharply after the latest Consumer Price Index data matched consensus estimates. Money markets now largely anticipate that the RBA will leave policy steady at its November meeting, with data from LSEG indicating the implied probability of a hike has dropped to around 20%.

Analysts at Commerzbank contend that the recent data help explain why “1.5 additional rate hikes by the RBA – as the market was still expecting yesterday – are likely to be too much.” In their assessment one day after the RBA’s latest decision, they highlight that the CPI release “also show” that the rationale for further tightening has weakened. While they acknowledge that “there’s no question that inflation is still too high, and it will take a while before it returns to the middle of the target range,” Commerzbank emphasizes that “interest rate hikes always take effect with a certain time lag,” particularly in the housing sector, “where building permits fell again in August by 6.1% compared to the previous month and prices in the largest cities continue to decline.” Against this backdrop, they argue that “the RBA would likely be well advised to wait and see how things develop in the coming months,” concluding that “as a result, the AUD is unlikely to receive any further tailwind.”

Hawkish Fed Rhetoric Underpins the Dollar

U.S. policy expectations have been reinforced by comments from Fed official Logan, whose latest remarks skewed more hawkish. Logan’s communication carried a FXS Speechtracker score of 9.2/10 versus a baseline of 8.1/10, indicating a stronger inclination toward tighter policy.

The message highlighted that higher yields may partly reflect a rise in term premiums, which could in theory lessen the need for further rate hikes. However, this was juxtaposed with explicit references to at least 50 bps of additional tightening and several more moves aimed at restoring price stability. The comments support the notion that rates may not yet be sufficiently restrictive, even as the economy shows solid expansion and the labor market remains balanced. In effect, the stance signals a Fed prepared to continue raising rates until inflation is credibly aligned with the 2% target, a narrative typically favorable for the Dollar and U.S. yields.

The FXS Fed Sentiment Index climbed by 1.68 points to 136.59, remaining well into hawkish territory above the neutral 100 mark and consistent with the elevated FXS Speechtracker score. This strengthening of the index suggests that Logan’s remarks have significantly reinforced expectations for further policy tightening, maintaining a supportive backdrop for the Greenback.

Technical Picture: Bearish Bias Persists Despite Oversold Readings

From a technical perspective, AUD/USD retains a negative short-term structure on the daily chart. The pair continues to trade below the 100-day moving average and the middle line of the Bollinger Bands, underscoring a bearish bias. Price action is currently pressing toward the lower Bollinger Band, while the 14-day Relative Strength Index hovers around 28, indicating oversold conditions. This configuration suggests that, although downward momentum is still in place, the intensity of the selloff could begin to ease.

On the downside, the first notable support aligns with the lower Bollinger Band near 0.6905, an area where selling pressure may begin to fade if oversold dynamics prompt short covering or profit-taking. On the topside, initial resistance is seen at the 100-day moving average around 0.7060. Above that, the Bollinger middle band at 0.7085 represents the next resistance zone, with the upper Bollinger Band near 0.7265 acting as a more distant ceiling that would need to be recovered to meaningfully challenge the existing bearish trend.

Key Levels Overview