Australian Dollar struggles for bullish momentum as Fed rate-hike bets underpin USD

• A firm USD limits AUD/USD’s ability to extend its modest intraday advance.
• Support for the USD persists following strong US CPI data and hawkish remarks from the Fed’s Waller.
• Bullish positions warrant caution as the RBA’s recent dovish turn also restrains the Aussie.

AUD/USD holds near 0.6875 in early European trading. The pair has edged higher on Wednesday, recovering from the 0.6845-0.6840 zone reached the previous day, its lowest since late March. A bullish US Dollar (USD), however, continues to limit the advance.

Hopes of a diplomatic breakthrough to end the US-Iran war are sustaining risk appetite and supporting AUD/USD. US Secretary of State Marco Rubio said on Tuesday that major combat operations against Iran were unnecessary. His remarks follow comments from US President Donald Trump, who told reporters that negotiations with Iran had positive momentum.

The geopolitical risk premium has not faded, however. The US-Iran standoff over the Strait of Hormuz persists, while tanker attacks continue in the waterway. At the same time, strengthening expectations of further policy tightening by the US Federal Reserve (Fed) are keeping the US Dollar (USD) close to a two-week high. That high was reached after Tuesday’s stronger-than-expected US consumer inflation data, and the dollar’s resilience is restricting AUD/USD gains.

Elevated US core inflation stalls disinflation progress

The latest figures show that US inflation remains uncomfortably high, according to economists at Commerzbank. Although price increases have moderated slightly at the margin, the economists warn of persistent underlying pressure. They observe that “prices are still rising too quickly, even though the increase was somewhat smaller than in September,” adding 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 have also begun pricing in the possibility of an outsized 50-basis-point (bps) rate increase in December following hawkish remarks from Fed Governor Christopher Waller. The contrast with the Reserve Bank of Australia's (RBA) dovish turn is substantial: the RBA’s shift signals that its rate-hiking cycle may be at or close to completion. This policy divergence is discouraging aggressive bullish positions in AUD/USD and adding to the pair’s headwinds.

4-hour AUD/USD chart

Near-term Technical Outlook

Trading below the 50-period Simple Moving Average (SMA) on the 4-hour chart leaves AUD/USD with a bearish near-term bias. At 0.6955, this dynamic resistance is likely to attract selling on rallies. The pair would need to regain that SMA to relieve the current downward pressure and clear a path to higher levels.

Initial meaningful support lies around 0.6857, the recent swing low. If the pair sustains a break below that level, the prevailing downtrend would be reinforced, leaving scope for further losses in the coming sessions.

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