Widening Fed-RBA policy divergence pushes Australian Dollar below 0.6850

• Below 0.6850, AUD/USD trades 0.27% lower despite upbeat market sentiment.
• A 25-basis-point Fed rate increase in December now carries an 87% probability.
• Markets price in rate cuts in 2027 as the RBA is expected to halt tightening.

With few economic releases scheduled in Australia or the US, expectations of further Federal Reserve tightening weighed on the Australian Dollar on Wednesday. It fell 0.27% against the US Dollar, leaving AUD/USD trading below 0.6850.

AUD/USD slides further as sticky US inflation bolsters expectations of Fed rate rises

Solid advances in US equities continue to underpin positive sentiment. Meanwhile, the US Dollar Index (DXY), which measures the currency against a basket of six peers, is up 0.67% at 102.91 in FX trading, having eased from an 18-month peak of 102.96.

Tuesday’s hawkish comments from Federal Reserve (Fed) officials helped lift the US Dollar. Fed Governor Christopher Waller had indicated that a 0.3% rise in core CPI could lead him to back a 50-basis-point rate increase; the subsequent release met that condition.

For the third consecutive month, underlying inflation rose 0.3% MoM in October. The headline CPI increase slowed from 0.6% to 0.4% MoM, although it exceeded the 0.3% forecast.

According to the CME FedWatch Tool, money market pricing assigned an 87% probability to a 25 bps increase, against a modest 13% chance of the Fed opting for a 50 bps rise.

Against this backdrop, AUD/USD is drifting lower as speculation grows that the Reserve Bank of Australia (RBA) has completed its tightening cycle and will leave rates unchanged for the foreseeable future. Prime Terminal data show expectations for 28 basis points of RBA rate cuts in 2027.

Australia’s forthcoming releases include November Consumer Inflation Expectations. The October reading rose to 5.3% from September’s 4.9%.

Thursday brings US Initial Jobless Claims, housing figures and speeches by Fed officials, with investors then turning to Friday’s Producer Price Index (PPI).

AUD/USD Price Forecast: Bears retain the technical advantage

At 0.6844 on the daily chart, AUD/USD retains a bearish short-term bias. Spot remains well below both the simple moving average (SMA) cluster around 0.7028 and several former ascending trend lines that now provide overhead resistance. Continued downward pressure is evident in the break below the latest rising support line, now resistance near 0.6926. With the Relative Strength Index (14) around 35, momentum is weak but has not yet reached oversold territory. This suggests sellers retain the upper hand unless the pair recovers those broken structural levels.

A recovery would first encounter the former ascending trend line around 0.6926, followed by the convergence of the 50-, 100- and 200-day SMAs near 0.7028. Only a daily close above that band would relieve immediate bearish pressure and clear a path towards 0.7135, then the horizontal resistance at 0.7198. Below current prices, substantial structural support lies only around 0.6343, where the long-term descending trend line now forms a base. The pair therefore remains exposed to a further gradual decline while trading beneath the resistance cluster noted above.

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