AUD/USD edged 0.17% higher on Wednesday to about 0.7035, with the Australian dollar underpinned by firmer inflation readings that have revived expectations of further Reserve Bank of Australia (RBA) tightening. Australia’s Consumer Price Index (CPI) rose 4.3% year-on-year in September versus 4% in August and a 4.2% forecast, while monthly CPI increased 0.8% after 0.4%, above the 0.7% consensus. Third-quarter CPI accelerated 1.3% quarter-on-quarter from 0.6%, and the Trimmed Mean CPI showed underlying inflation up 0.3% month-on-month and 3.7% year-on-year, keeping the November meeting in focus.
In the US, markets were positioned for the Federal Reserve (Fed) to hold rates in the 3.75%–4.00% band after September’s 25-basis-point rise, with CME FedWatch pricing roughly a 9% probability of a hike at this meeting. US CPI rose 3.7% year-on-year in September from 3.4%, and pricing continued to imply tightening in December, which could steady the dollar and temper AUD/USD gains. On the charts, the pair traded around 0.7037, above the 100-period SMA at 0.7026 and the 200-period SMA at 0.7010; RSI (14) sat near 56, with resistance at 0.7040, 0.7055 and 0.7075, and support at 0.7026, 0.7020 and 0.7010.
Australian Inflation and Policy Divergence Opportunities
We see strong reason to prepare for further upward momentum in AUD/USD derivatives over the coming weeks as Australian inflation surges to 4.3%. Historically, when trimmed-mean CPI rises past 3.5%, the Reserve Bank of Australia has delivered interest rate hikes in over 80% of historical instances.
With third-quarter inflation jumping 1.3% quarter-on-quarter, markets are rapidly pricing in a rate hike at the upcoming November meeting. We should consider taking advantage of shallow pullbacks to build long derivative exposure while the price holds above the 0.7010 to 0.7020 support region.
On the other side of the pair, the US Federal Reserve is expected to keep benchmark rates steady between 3.75% and 4.00%, creating a supportive yield differential for the Australian Dollar. Futures markets currently assign only a 9% probability to an immediate US rate hike, which opens a clear window for currency traders in the short term.
From a technical perspective, we suggest watching for a confirmed break above the 0.7040 barrier to target higher resistance zones at 0.7055 and 0.7075. The Relative Strength Index hovering at 56 shows that bullish momentum remains healthy without being overextended.
To manage risk ahead of major central bank press conferences, we advise setting strict stop-loss levels just below the 200-period moving average at 0.7010. This approach allows us to participate in potential upside gains while limiting downside exposure if central bank guidance shifts.
