Aussie Dollar Extends Losses Ahead of Key Fed Minutes

Key Moments

AUD/USD Surrenders Ground Below 0.7000

AUD/USD trades weaker around 0.6970 in the early Asian session on Wednesday, breaking a three-session winning run. The Australian Dollar (AUD) loses momentum against the US Dollar (USD) as expectations for further tightening by the Reserve Bank of Australia (RBA) fade. Investors turn their focus to the upcoming release of the Federal Open Market Committee (FOMC) Minutes later on Wednesday for guidance on the Federal Reserve’s policy stance.

Following the latest Consumer Price Index (CPI) data that aligned with forecasts, the probability of another RBA rate increase in November has declined sharply. Money markets now largely anticipate that the Australian central bank will keep its benchmark rate unchanged at its early-November meeting, with the likelihood of a hike falling to around 20%, according to market data from LSEG.

Fed Officials Maintain Hawkish Tone Ahead of Minutes

Kansas City Federal Reserve President Jeff Schmid stated on Tuesday that the central bank still needs to raise its policy rate further to bring inflation down, even as higher long-term yields weigh on parts of the economy.

Later on Wednesday, the Fed is scheduled to publish the Minutes of its September 15-16 policy meeting, when it raised interest rates in response to inflation pressures. Since then, commentary from Fed officials has been perceived as less hawkish following softer-than-expected Personal Consumption Expenditures (PCE) inflation figures and weaker labor market data last week.

“There seems to be a little bit less urgency on the Fed to hike rates after the softer PCE and then the nonfarm payroll reports recently,” said Gavin Friend, a senior markets strategist at National Australia Bank.

UOB Sees AUD/USD Weakness Slowing Near Key Support

Strategists at UOB Group report that their 1-3 week outlook for AUD/USD is still governed by the downside move that began in mid-September. However, they emphasize that “while the weakness that started in the middle of last month … remains intact, given the deeply oversold conditions, any further decline may fall short of the next major support at 0.6866.” They further highlight that “downward momentum is starting to slow,” and reaffirm that a convincing push above “0.6985 (no change in ‘strong resistance’ level) would indicate that 0.6866 is out of reach,” signaling a potential shift away from the previously preferred bearish target.

Schmid Highlights AI-Linked Inflation as Fed Stays Hawkish

Jeff Schmid’s latest remarks strike a distinctly hawkish chord, reflected in an 8/10 FXS Speechtracker score, marginally above the historical average of 7.5/10. His focus on a labor market that “remains in a good place,” frustration over persistent inflation, and the assertion that artificial intelligence has become one of the largest contributors to inflation all point to an assessment that price pressures are both enduring and structurally evolving.

By underscoring that the Fed’s credibility is on the line and that “work remains to be done on the short rate” despite elevated long-term yields, the speech reinforces expectations for an extended period of restrictive policy. This stance is supportive of the US Dollar and poses challenges for risk-sensitive assets such as the AUD.

The FXS Fed Sentiment Index increased by 0.34 points to 137.91, keeping the measure solidly in hawkish territory, well above the neutral benchmark of 100 and in line with the strong FXS Speechtracker result. Taken together, the rise in the index and robust speech score suggest Fed messaging is leaning more firmly toward sustained tightening, a backdrop that is expected to continue favoring the Dollar over lower-yielding currencies.

Technical Picture: AUD/USD Holds Bearish Bias Below Key Averages

On the daily chart, AUD/USD maintains a bearish short-term tone as spot trades below both the 100-day simple moving average (SMA) and the 20-day middle band of the Bollinger Bands. This configuration keeps the broader topside structure intact as resistance. The 14-day Relative Strength Index (RSI) stands at 36.6, lingering just above oversold conditions and indicating sustained selling pressure rather than a clear sign that the downtrend has run its course.

On the upside, initial resistance is clustered near the Bollinger middle band at 0.7050 and the 100-day SMA at 0.7055, while a more distant hurdle sits around the upper Bollinger band at 0.7205. On the downside, support is seen at the lower Bollinger band near 0.6895, and a decisive breach of this level would likely pave the way for an extension of the prevailing bearish phase.