AUD/USD Price Forecast: Pair remains under pressure after H&S pattern breakdown

• AUD/USD slips towards 0.6833 amid Australian Dollar underperformance.
• A December interest rate rise from the Fed is certain.
• The RBA’s monetary policy minutes and Governor Michele Bullock’s speech are in focus for investors.

A 0.15% fall leaves the Australian Dollar (AUD) trading near 0.6833 against the US Dollar (USD) in Thursday’s European session, lagging its currency peers. Doubts among market experts over whether the Reserve Bank of Australia’s (RBA) monetary tightening cycle will continue are weighing on the Australian currency.

Mixed signals accompanied the RBA’s latest decision, according to analysts at OCBC Group Research. They noted that the statement justified the rate rise by saying “inflation remains elevated and recent data indicate that it is broadly based”, but also recognised that “the increases in the cash rate target since the beginning of the year have tightened financial conditions. The economy is slowing, housing prices have fallen significantly and the unemployment rate has risen”.

The removal of “including increasing the cash rate target further if needed” from the statement also marked a softening of the RBA’s forward guidance, OCBC noted. Its conclusion was: “We expect no more hike in this cycle, and the next policy move is likely to be a cut.”

Tuesday’s scheduled speech by Governor Michele Bullock and the minutes of the RBA’s October monetary policy meeting will be watched by investors for further indications of the policy outlook.

Broader US Dollar strength is adding to the pressure on the Aussie pair. Having surrendered its earlier gains, the US Dollar Index (DXY) is flat near 102.86 at the time of writing. Earlier in the session, it reached a new 18-month high of 103.08.

Dollar index reaches new high as year-end Fed rate rise expectations strengthen

Stronger US inflation readings are central to MUFG analysts’ explanation of the Dollar’s advance. They report that the US Dollar has “continued to strengthen overnight,” taking the Dollar Index to “a fresh year-to-date high of 103.08.” In their assessment, the Dollar’s “renewed upward momentum has been encouraged by expectations that the Fed is likely to speed up the pace of rate hikes in response to the recent run of stronger US inflation data.” Turning to the rates market, MUFG notes that “the yield on the 2-year US Treasury has jumped high by around 33bps from the low at the end of last week although still remains below the peak set in September at 4.96%.”

December’s policy decision is now the focus of that repricing. According to MUFG, “a 25bps rate hike at the next FOMC meeting in December is now fully priced in, and market participants have moved further to price in small probability of larger 50bps hike.” The analysts further note that “there are currently around 28bps of hikes priced by December, and 43bps of hikes priced by the following meeting in January indicating that even if the Fed hikes by 25bps in December it is now expected to quickly follow up with another 25bps hike at the start of next year.”

Hawkish remarks from Fed policymakers have reinforced expectations of quicker tightening, MUFG says, describing those expectations as “encouraged by hawkish comments this week by Fed officials.” Among the officials it cites is Governor Christopher Waller, who “stated he would consider voting for a larger 50bps hike in December,” alongside Dallas Fed President Lorie Logan, a current voting member. Logan said “the FOMC needs to implement at least two more 25bps rate increases” and “it may be possible to move more rapidly this winter than the FOMC has moved this fall.” Meanwhile, Chicago Fed President Austan Goolsbee, who gains a vote next year, called the October CPI release “another distressing report, borderline disturbing,” drawing particular attention to services inflation, which “has remained persistently high.”

Particular importance could attach to New York Fed President John Williams’ latest assessment, with MUFG emphasising that “the updated views of New York Fed President John Williams could carry more weight.” The analysts refer back to his recent statement that it is an “appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make sure we achieve a timely return to our 2% target.” Although MUFG does not anticipate “a larger 50bps hike to be delivered in December,” its assessment is that “it is more likely now that the Fed could hike rates back-to-back in December and January.”

For the US currency, MUFG regards the changing policy outlook as “a development that will encourage the US dollar to trade at stronger levels heading into year end.” The analysts conclude that “a sharp tightening of US financial conditions and/or ongoing drop in energy prices would likely be required to significantly push back against market expectations for faster Fed hikes at the current juncture.”

AUD/USD Remains Under Near-Term Technical Pressure

At 0.6835 on the daily chart, AUD/USD retains a bearish near-term outlook, with spot well below the 20-period exponential moving average (EMA) of 0.6947. Trading beneath this important trend indicator, together with the breakdown of the Head and Shoulders (H&S) chart pattern, suggests that recent recoveries remain constrained. Meanwhile, a Relative Strength Index (14) reading near 35 indicates weakness, but points to only modest downward momentum rather than outright oversold conditions.

The first resistance on any recovery lies at the neckline of the H&S pattern at 0.6900, ahead of the 20-period EMA at 0.6947. Only a decisive move back above that barrier would alleviate immediate selling pressure and pave the way for a wider corrective rebound. On the downside, further losses could take the pair towards 0.6800.

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