Can the Australian Dollar Gain Bullish Momentum as Fed Rate Hike Bets Keep the USD Supported?

• A firm USD limits AUD/USD’s ability to build on its modest intraday advance.
• Support for the USD persists following the hot US CPI reading and hawkish remarks from the Fed’s Waller.
• Bulls have reason to remain cautious as the RBA’s recent dovish turn also restrains the Aussie.

A bullish US Dollar (USD) keeps AUD/USD’s recovery in check on Wednesday, although the pair holds on to gains around 0.6875 in the early European session. The modest buying interest has lifted spot prices away from the previous day’s 0.6845-0.6840 zone, their lowest level since late March.

Risk appetite continues to support AUD/USD as investors retain hopes of a diplomatic breakthrough that could bring the US-Iran war to an end. US Secretary of State Marco Rubio said on Tuesday that major combat operations against Iran were not necessary. His remarks followed US President Donald Trump’s comments to reporters that negotiations with Iran had positive momentum.

Nevertheless, the standoff between the US and Iran over the Strait of Hormuz, alongside continued tanker attacks in the waterway, keeps the geopolitical risk premium intact. AUD/USD’s gains also face a constraint from the US Dollar (USD), which remains firm near the two-week high reached after Tuesday’s stronger-than-expected US consumer inflation data. Growing expectations of additional policy tightening by the US Federal Reserve (Fed) are helping sustain the dollar’s strength.

Is US disinflation stalling as core price pressures remain high?

The latest figures show that US inflation remains uncomfortably high, economists at Commerzbank warn. While acknowledging some marginal moderation, they point to persistent underlying price pressures, noting that “prices are still rising too quickly, even though the increase was somewhat smaller than in September,” and emphasising that “the rapid decline in inflation that the Fed had hoped for has yet to materialize.” Their assessment is that “core inflation, a key gauge of the underlying trend, thus remains (too) high and is no longer trending downward,” highlighting the persistence of those pressures.

Traders, meanwhile, began pricing in the possibility of a jumbo 50-basis-point (bps) rate hike in December following hawkish remarks by Fed Governor Christopher Waller. The prospect contrasts sharply with the dovish turn at the Reserve Bank of Australia (RBA), which suggests its rate-hiking cycle may be at or close to an end. That policy divergence creates a further headwind for AUD/USD, discouraging traders from taking aggressive bullish positions.

What does the AUD/USD 4-hour chart show?

Can the Technical Outlook Improve?

Trading below the 50-period Simple Moving Average (SMA) on the 4-hour chart leaves AUD/USD with a bearish near-term bias. Advances towards this important dynamic resistance at 0.6955 are therefore likely to encounter selling. A move back above the SMA is needed to relieve the prevailing bearish pressure and pave the way for higher levels.

Initial meaningful support lies around the recent swing low of 0.6857. Should the pair sustain a break below that level, the existing downtrend would be reinforced, leaving it vulnerable to further losses over the coming sessions.

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