Buying interest supports Australian Dollar near 0.6850 against US Dollar as outlook remains unclear

• Despite renewed bets on a more hawkish Fed, the Australian Dollar advances towards 0.6878 against the US Dollar.
• Above-forecast US CPI figures have fuelled concerns that the Fed could deliver an outsized interest rate increase.
• November’s Australian Consumer Sentiment Index falls to 78.2.

With October’s US inflation figures exceeding expectations, concerns over aggressive monetary tightening by the Federal Reserve (Fed) leave the AUD/USD outlook uncertain. Nevertheless, the Australian Dollar (AUD) strengthens against the US Dollar (USD) from around 0.6845, rising 0.2% to near 0.6878 during Wednesday’s Asian session as it outperforms its peers.

A larger Fed interest rate increase at December’s policy meeting is now a concern following the stronger-than-forecast United States (US) Consumer Price Index (CPI) reading for October.

Figures published on Tuesday by the Bureau of Labor Statistics (BLS) showed headline Consumer Price Index (CPI) growth accelerating to 0.4% month-on-month (MoM), exceeding estimates of 0.3%. Excluding volatile food and energy components, core CPI registered 0.3% over the same period, against expectations of 0.2%.

Ahead of the US CPI release, Fed Governor Christopher Waller said a “half-point Fed rate hike may be needed in December, if October core CPI inflation comes in around 0.3% or higher.”

The CME FedWatch tool now puts the probability of a 50 basis points (bps) Fed rate increase, taking rates to the 4.25%-4.50% range, at around 9%. Before the figures were released, no probability had been assigned to such a move.

Following the stronger US CPI report, the US Dollar has also outperformed. At the time of writing, the US Dollar Index (DXY) remains around 102.25, retaining Tuesday’s gains.

In Australia, November’s Westpac-Melbourne Institute Consumer Sentiment Index registered 78.2, compared with 80.4 in October, marking its lowest reading since late 2022. Higher interest rates and increased inflationary pressures have weighed on Australian consumer sentiment.

AUD/USD Retains a Bearish Technical Bias

At 0.6881 on the daily chart, AUD/USD retains a bearish short-term bias, having broken below former rising trendline support at 0.6910. The 20-day Exponential Moving Average (EMA), near 0.6962, continues to cap the pair. Trading below both reference levels suggests that rallies are likely to meet selling pressure. Meanwhile, the Relative Strength Index (RSI) sits around 39, beneath the neutral 50 threshold, indicating that downward momentum is easing but still favours sellers.

The former trendline support around 0.6910 now provides initial resistance, ahead of a firmer barrier at the 20-day EMA near 0.6962. A daily close above that average would be required to relieve immediate bearish pressure. Below the current price, clearly defined indicator-based support levels are absent, leaving scope for further losses. Traders are therefore likely to look for new price-action support nearer recent lows to assess whether sellers can maintain their grip or a corrective recovery is beginning to develop.

(The technical analysis of this story was written with the help of an AI tool. Know more.)