AUD Firms Near 0.69 Despite Fed Rate Hikes & Soft Data

Key Moments:

Australian Dollar Advances Despite Fed Tightening Fears

The Australian Dollar is gaining against the US Dollar, with AUD/USD quoted around 0.6845 and edging 0.2% higher toward 0.6878 in Asian trading on Wednesday. The move reflects relative strength in the Australian currency versus its peers, although the broader outlook for the pair stays clouded by concerns over potentially more aggressive policy tightening by the Federal Reserve.

Stronger-than-anticipated US inflation data for October has rekindled worries that the Fed could opt for a larger interest rate increase at its December policy meeting, dampening clarity around AUD/USD’s medium-term direction.

US CPI Surprise Lifts Fed Hike Odds and Supports USD

Data released Tuesday by the Bureau of Labor Statistics showed headline US Consumer Price Index rising 0.4% Month-on-Month, exceeding the 0.3% consensus forecast. Over the same period, core CPI – which excludes food and energy – printed at 0.3%, above the expected 0.2% outcome.

Before the release, Fed Governor Christopher Waller signaled that a stronger core CPI reading could justify a larger move, stating that a “half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.”

Fed funds futures pricing reflected a shift following the data. According to the CME FedWatch tool, the probability of a 50 basis point rate increase to a 4.25%-4.50% target range rose to around 9%, a scenario that was not priced at all before the inflation numbers were published.

The US Dollar reacted positively to the upside surprise in CPI. The US Dollar Index (DXY) has been holding onto Tuesday’s gains, trading near 102.25 at the time of writing.

Australian Consumer Confidence Slides to New Lows

In Australia, domestic sentiment data weakened further. The Westpac-Melbourne Institute Consumer Sentiment Index dropped to 78.2 in November from 80.4 in October, marking the softest reading since late 2022. The decline underscores the pressure on Australian households from higher interest rates and persistent inflation, which has been eroding confidence.

Technical Picture: AUD/USD Retains Near-Term Bearish Bias

On the daily chart, AUD/USD is trading at 0.6881 and maintains a bearish near-term tone after breaking below its previous upward trend-line support at 0.6910. The pair also remains contained beneath the 20-day Exponential Moving Average near 0.6962. Trading below both these reference points suggests that rallies are likely to encounter selling interest.

The Relative Strength Index sits around 39, remaining under the neutral 50 threshold. This configuration points to a moderation in downside momentum but still favors sellers on balance.

On the upside, initial resistance is located at the former trend-line support near 0.6910. A more substantial barrier is seen at the 20-day EMA around 0.6962, where a daily close above would be required to alleviate immediate bearish pressure. On the downside, the absence of clearly defined indicator-based supports below current levels leaves the pair exposed to further weakness. Market participants are likely to focus on emerging price floors closer to recent lows to assess whether selling can extend or if a corrective rebound begins to develop.

Key US Inflation Gauge: Core CPI (MoM)

The Consumer Price Index excluding Food and Energy (Month-on-Month) is a widely followed measure of underlying inflation trends. It is compiled monthly by the US Department of Labor Statistics and reflects changes in the prices of a representative basket of goods and services, excluding the typically more volatile food and energy categories. A higher-than-expected reading is generally interpreted as supportive for the US Dollar, while a lower figure tends to be seen as negative for the currency.

Relevance for Market Participants

The US Federal Reserve operates under a dual mandate of promoting price stability and maximum employment. Within this framework, inflation around 2% Year-over-Year is viewed as consistent with price stability. Since the pandemic period, this inflation component of the mandate has been under strain, with price pressures elevated amid supply-chain disruptions and bottlenecks. The CPI, including the core measure excluding food and energy, has remained high, prompting the Fed to implement actions aimed at cooling inflation and to adopt what is characterized as an aggressive policy stance for the foreseeable future.