Inflation surprise gives Australian Dollar fresh impetus ahead of Fed decision

• Up 0.17% on Wednesday, the Australian Dollar draws support from above-forecast inflation.
• 4.3% annual inflation in September puts Australia above the 4.2% forecast as price growth accelerates.
• Investors await the Fed Chair's remarks as the central bank is expected to hold interest rates steady on Wednesday.

A 0.17% gain puts AUD/USD around 0.7035 on Wednesday at the time of writing. Stronger-than-forecast Australian inflation supports the Australian Dollar (AUD), reinforcing expectations that the Reserve Bank of Australia (RBA) will raise interest rates again.

September's Consumer Price Index (CPI) rose 4.3% YoY, according to Wednesday's release from the Australian Bureau of Statistics (ABS). That compares with 4% in August and a market forecast of 4.2%. Monthly consumer price growth reached 0.8%, above the 0.7% projection and following a 0.4% increase in the preceding month.

Third-quarter consumer prices climbed 1.3% QoQ, against 0.6% in the second quarter, underscoring continued inflationary pressure. The Trimmed Mean CPI measure of underlying inflation recorded increases of 0.3% MoM and 3.7% YoY in September.

Persistent price pressures, confirmed by these readings, leave the RBA facing a more complicated monetary policy outlook. With the central bank working to contain inflation, the renewed acceleration in consumer prices has increased speculation that a rate rise could come as soon as the November meeting.

Expectations of potentially higher returns on Australian Dollar-denominated assets underpin the currency as investors consider the prospect of additional monetary tightening. AUD/USD benefits from that support, though forthcoming US policy decisions could shape its next move.

Wednesday's Federal Reserve (Fed) policy announcement is the focus in the United States (US). Following September's 25-basis-point (bps) increase, markets broadly anticipate no change to the benchmark interest rate, currently in the 3.75%-4.00% range.

Only around a 9% probability of a further rate rise at this meeting is priced in by investors, according to the CME FedWatch tool. That is despite stubborn US inflation, with annual CPI accelerating to 3.7% YoY in September from 3.4% previously. Expectations still point to another round of tightening in December, however. This could cushion the US Dollar (USD) against losses and constrain additional AUD/USD gains.

Fed Chair Kevin Warsh's post-meeting press conference will consequently draw close attention. While recently reaffirming his commitment to price stability, Warsh stressed that he does not wish to prejudge forthcoming monetary policy decisions.

Whether the Fed plans to extend its tightening cycle before year-end will be a key question for investors. A more hawkish message could bolster the US Dollar. A more cautious tone, by contrast, could give AUD/USD room to climb further as anticipated Australian rate increases continue to favour the Aussie.

AUD/USD: Technical Outlook

At 0.7037 on the one-hour chart, AUD/USD retains a mildly bullish bias. It remains above both the 100-period simple moving average (SMA) at 0.7026 and the 200-period SMA at 0.7010, while rising trend-line support sits near 0.7020. With the pair consolidating just below near-term resistance, the Relative Strength Index (14) reading of around 56 signals steady upside momentum that is not yet overstretched.

The horizontal barrier around 0.7040 marks immediate resistance. Beyond it lie 0.7055 and then 0.7075, where an extended rally is likely to encounter greater supply. Initial downside support comes from the 100-period SMA near 0.7026, followed by the trend-line area around 0.7020. If intraday buyers retreat, the 200-period SMA at 0.7010 provides a further buffer.

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