Australian Dollar gathers momentum after inflation surprise ahead of Fed decision

• Stronger-than-forecast inflation data lift the Australian Dollar by 0.17% on Wednesday.
• At 4.3% in September, Australia's annual inflation rate accelerated beyond the 4.2% forecast.
• Investors await the Fed Chair's remarks as the central bank is expected to hold interest rates steady on Wednesday.

Stronger-than-forecast Australian inflation has reinforced expectations of a further interest rate increase by the Reserve Bank of Australia (RBA), lending support to the Australian Dollar (AUD). AUD/USD is trading around 0.7035 at the time of writing on Wednesday, up 0.17% on the day.

Australia's Consumer Price Index (CPI) increased by 4.3% YoY in September, exceeding the market forecast of 4.2% and August's 4%, figures published on Wednesday by the Australian Bureau of Statistics (ABS) showed. Monthly consumer price growth also surpassed expectations, reaching 0.8% against a forecast of 0.7%, after a 0.4% increase in the preceding month.

Third-quarter figures likewise point to elevated inflationary pressure: consumer prices climbed 1.3% QoQ, following a 0.6% rise in the second quarter. The Trimmed Mean CPI measure of underlying inflation, meanwhile, rose by 0.3% MoM and 3.7% YoY in September.

For the RBA, the persistence of inflationary pressure evident in these figures makes the monetary policy outlook more difficult. With the central bank working to contain inflation, the renewed acceleration in consumer prices has encouraged speculation that an interest rate increase could come as soon as the November meeting.

Wednesday's monetary policy announcement from the Federal Reserve (Fed) is the focus in the United States (US). Following September's 25-basis-point (bps) increase, the central bank is widely expected to keep its benchmark interest rate within the existing 3.75%-4.00% range.

The CME FedWatch tool puts the probability investors assign to a further rate increase at this meeting at only around 9%, notwithstanding continued US inflationary pressure. September's annual US CPI reading accelerated to 3.7% YoY from 3.4% previously. Nevertheless, markets still anticipate further monetary tightening in December, potentially cushioning the US Dollar (USD) against losses and constraining additional AUD/USD gains.

Fed Chair Kevin Warsh's remarks at the press conference following the meeting will consequently attract close attention. In recent comments, Warsh reaffirmed his commitment to price stability but stressed that he does not wish to prejudge forthcoming monetary policy decisions.

Whether the Fed plans to pursue further monetary tightening before year-end will therefore be a key question for investors. The US Dollar could benefit from a more hawkish message; a more cautious stance, by contrast, could leave room for AUD/USD to build on its gains as expectations of higher Australian interest rates remain supportive of the Aussie.

AUD/USD retains a modest bullish bias in technical trading

Trading at 0.7037 on the one-hour chart, AUD/USD retains a modest upward bias above both the 100-period simple moving average (SMA) at 0.7026 and the 200-period SMA at 0.7010. Rising trend-line support lies near 0.7020. With the Relative Strength Index (14) around 56, upward momentum appears steady rather than overstretched, while the pair consolidates just below near-term resistance.

The horizontal barrier around 0.7040 provides the first resistance level, with 0.7055 next and 0.7075 beyond that, where selling pressure is likely to increase if gains continue. Initial downside support comes from the 100-period SMA near 0.7026, followed by the trend-line area around 0.7020. Should intraday buying interest fade, the 200-period SMA at 0.7010 provides a further layer of support.

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