Aussie Slips as Hawkish Fed Signals Bolster Greenback

Key Moments

Fed Minutes Reinforce Hawkish Bias, Lifting USD

The Australian Dollar weakened against the US Dollar in early Asian trading on Thursday, with AUD/USD retreating to around 0.6965. The move coincides with renewed strength in the US Dollar after the latest Minutes from the Federal Open Market Committee highlighted policymakers’ inclination toward further policy tightening.

The Minutes released Wednesday indicated that Federal Reserve officials expect to raise interest rates again before the end of the year to address inflation that has exceeded target for more than five years.

“The FOMC’s minutes reinforced the hawkish tone accompanying the Fed’s September rate hike, with most participants still viewing further tightening as appropriate and almost all seeing inflation risks tilted to the upside at the time of the meeting,” said Westpac analysts.

At the September meeting, Fed policymakers voted to lift the target range for the benchmark interest rate by 25 basis points to 3.75% to 4%, marking the first increase since July 2023. Despite the hawkish tone, market pricing has moderated, with traders now assigning about a 22% chance of another 25 basis point hike at the October policy meeting, down from roughly 70% in the immediate aftermath of the September decision.

Later in the day, investors are focused on the upcoming US weekly Initial Jobless Claims report and additional Fedspeak, which could further influence near-term Dollar direction and rate expectations.

RBA Outlook: Rate Hike Labeled “Plausible” as Markets Reassess

On the Australian side, interest rate expectations remain finely balanced. Former Reserve Bank of Australia board member Ian Harper commented that another rate increase this year is “plausible,” while emphasizing that it is not necessarily the base case.

Money market pricing reflects a cautious stance, with ASX Rate Tracker data showing a 27% implied probability of a consecutive RBA hike to 4.85% at the next Board meeting. Shifts in these expectations are likely to remain a key driver for AUD in the near term.

UOB Moves to Neutral as AUD Downtrend Loses Momentum

Strategists at UOB Group report that their prior bearish view on the Australian Dollar has faded as the recent decline stalled and key support levels remained intact. They note that from the middle of last month they had maintained a negative outlook on AUD, but by Friday, 02 Oct, with spot around 0.6930, they had already warned that “any further decline in AUD may fall short of the major support at 0.6866.”

By Monday, 05 Oct, as spot traded near 0.6970, UOB pointed out that “downward momentum is starting to slow, and a break above 0.6985 (no change in ‘strong resistance’ level) would indicate that 0.6866 is out of reach.” The currency pair subsequently moved beyond 0.6985, reaching a high of 0.6990, which in their view confirmed that the previous downside target was unlikely to be met in the near term.

Given this evolution, UOB has now adopted a neutral stance on the Australian Dollar, projecting that AUD “to trade between 0.6935 and 0.7020” over the next 1–3 weeks. They expect price action to consolidate within this relatively narrow band as the market digests evolving macro and policy signals.