Below 0.6800: Australian Dollar retreats on hawkish Fed as attention turns to Chinese data

• 0.6775 is in focus as AUD/USD eases in early Asian trading on Monday.
• US Treasury yields and the US Dollar gain as expectations build for a larger Fed rate increase.
• Monday’s Chinese economic releases take centre stage before the RBA Minutes.

AUD/USD slips towards 0.6775. In Monday’s early Asian session, hawkish remarks by Federal Reserve (Fed) officials help the US Dollar (USD) edge up against the Australian Dollar (AUD). China’s Industrial Production and Retail Sales releases, due on Monday, are the next potential catalysts for traders.

Addressing price pressures on Sunday, Kansas City Fed President Jeff Schmid said the central bank has both the tools and the responsibility to tackle inflation that is “running too hot,” adding that it “has some work to do on inflation.” Separately, Boston Fed President Susan Collins backed a consistent pace of modest interest rate rises, saying this approach better managed economic uncertainties.

A larger-than-usual Fed rate increase next month is under consideration among traders following the latest stronger-than-expected US inflation figures and hawkish comments from Fed officials. The CME FedWatch tool puts the market-implied probability of a 25-basis-point rise next month at roughly 93.5%.

Whether to raise interest rates for the fifth time in a year divided Reserve Bank of Australia (RBA) board members. Due on Tuesday, the minutes of the RBA’s November meeting will detail the rationale for lifting the cash rate to 4.85%, an 18-year high.

4.85% RBA rate: AUD support fades as Fed repricing widens the gap

With investors reassessing the scope for further tightening by both central banks, MUFG analysts say the “pre-emptive nature of monetary tightening in Australia has benefitted the Australian Dollar but time appears to have run out for providing support for the currency as investors conclude that RBA is running out of scope for additional rate hikes at a time when investors are reappraising their views on additional Fed rate hikes.” Five RBA increases this year have taken the policy rate to “4.85%…the highest since 2008 when the RBA was cutting rates into the Global Financial Crisis.” MUFG links this front-loaded tightening to market pricing, noting that “the OIS curve through to Q4 2027 shows mostly a flat curve but a probability of a rate cut (-15bps priced) in Q3-Q4 next year.”

The Fed, in contrast, is viewed as having substantially more tightening ahead. As MUFG puts it, “given the Fed has raised rates just once, the market has another 85bps of hikes priced – that’s a 100bp swing in expected policy rates by Q4 next year.” Relative interest rate support for the Aussie has weakened sharply as expectations shift: “the 2-year AU-US swap spread has moved 100bps lower since peaking in early April and has dropped 30bps just in the last week or so.” MUFG also sees mounting resistance to additional tightening within the RBA following its latest decision, noting that “the RBA vote when it hiked this month (6-3) underlined the growing opposition to hikes and RBA Governor Bullock signalled a pause to assess given some of the tightening will not have hit the real economy.”

Domestic figures are beginning to show the effects of higher borrowing costs. Highlighting the housing data, MUFG says “where you’d expect to see it first has started to come through – Australian home loans plunged 15.5% in Q3, double what was expected and the biggest drop in the data series back to 2002.”

These conditions underpin MUFG’s assessment that “we view AUD as probably the most vulnerable currency in a sharp AI-related sell-off.” Its reasoning combines the Australian Dollar’s “relatively high macroeconomic exposure,” its “energy and commodity exposures that would result in a negative terms of trade hit,” and its characterisation as “high-beta and hence [it] would underperform in a scenario of tightening financial conditions and a rise in financial market volatility.” The analysts point to recent trading as evidence: “in the recent 6-day period of AI selling through to 5th November, AUD was the worst performing G10 currency.” Although MUFG observes that “despite the AUD sell-off from the most recent high in September, AUD is still the 2nd best performing G10 currency on a year-to-date basis,” it warns that “if the AI sell-off intensifies again, AUD remains more vulnerable than other G10 currencies.”

7/10 Schmid score: persistent inflation supports hawkish Fed stance

A 7/10 FXS Speechtracker reading places Fed official Schmid’s message slightly above his 6.9/10 historical average for hawkishness. He stresses that “work containing inflation has only gotten harder” and that inflation remains “uncomfortably above” the 2% target. Schmid notes that inflation would be around 3% even without energy, while the labour market is broadly balanced. This presents inflation as a problem of widespread price pressures rather than wage growth. He also identifies demand management as the Fed’s principal tool, rejecting the idea that policy should target individual prices, including those of AI-related technology goods.

An increase of 1.00 points took the FXS Fed Sentiment Index to 148.44, well within hawkish territory and in line with the slightly elevated FXS Speechtracker reading. The rise indicates that markets should anticipate a continued Fed tightening bias. With policy still directed at curbing persistent inflation, the Dollar is likely to retain support.

Technical Analysis: 100-day SMA caps AUD/USD as bearish outlook persists

Below both the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day SMA midline, AUD/USD continues to fall on the daily chart. These levels establish a clearly bearish near-term structure. The pair remains just above the lower Bollinger Band, with the Relative Strength Index (14) near 30.6 and approaching oversold territory. Downward pressure therefore remains dominant, although selling momentum may be close to exhaustion rather than gathering strength.

Any corrective recovery faces a broad supply zone: the Bollinger 20-day SMA near 0.6950 provides the first resistance, ahead of the 100-day SMA at 0.7025 and the upper Bollinger Band at 0.7135. Immediate support lies at the lower Bollinger Band, at 0.6768. A clear break below that level would pave the way for further losses within the downtrend. Staying above it, however, would preserve the possibility of a modest recovery towards 0.6950.

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