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

• With the USD retaining a bullish bias, AUD/USD finds it difficult to extend its modest intraday advance.
• Stronger-than-expected US CPI data, alongside hawkish remarks from the Fed’s Waller, continue to underpin the USD.
• Further limiting the Aussie is the RBA’s recent dovish turn, leaving bulls with reason for caution.

After reaching the 0.6845-0.6840 region on Tuesday, its lowest level since late March, AUD/USD edges higher on Wednesday. The pair holds on to its advance around 0.6875 in early European trading, although a firm US Dollar (USD) limits the scope for further gains.

Hopes of a diplomatic breakthrough to bring the US-Iran war to an end continue to encourage risk-taking, lending support to AUD/USD. On Tuesday, US Secretary of State Marco Rubio said major combat operations against Iran were unnecessary. His remarks come as US President Donald Trump told reporters that negotiations with Iran were gaining positive momentum.

Nevertheless, the standoff between the US and Iran over the Strait of Hormuz, together with ongoing tanker attacks in the waterway, keeps the geopolitical risk premium intact. Expectations of additional tightening by the US Federal Reserve (Fed) are also strengthening. This helps the US Dollar (USD) hold close to the two-week high reached on Tuesday after US consumer inflation exceeded forecasts, restricting AUD/USD’s advance.

Elevated core pressures halt progress on US inflation

The latest figures indicate that US inflation remains uncomfortably high, economists at Commerzbank warn. As they put it, “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 underlying price pressures even as there is some marginal moderation.

Traders have also begun pricing in the possibility of an outsized 50-basis-point (bps) rate increase in December following hawkish remarks by Fed Governor Christopher Waller. The prospect contrasts sharply with the dovish turn at the Reserve Bank of Australia (RBA), which signals that its rate-hiking cycle may already be over or nearing its end. This policy divergence creates a further obstacle for AUD/USD, discouraging traders from taking aggressively bullish positions.

AUD/USD on the 4-hour chart

Technical outlook remains bearish

Trading below the 50-period Simple Moving Average (SMA) on the 4-hour chart leaves AUD/USD with a bearish short-term bias. With the pair beneath this important dynamic resistance, rallies towards the SMA at 0.6955 are likely to attract selling. A recovery above that level is needed to relieve the current downward pressure and pave the way for further gains.

Initial significant support lies around 0.6857, the recent swing low. Should the pair sustain a break below this level, the prevailing downtrend would gain strength, leaving it vulnerable to further losses over the coming sessions.

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