Australian Dollar retreats towards 0.6900 amid growing expectations of a Fed rate hike

• With the US Dollar recovering on Tuesday, the Australian Dollar pares back part of Monday's advance.
• Expectations of a further interest rate increase in December strengthen following hawkish remarks from Federal Reserve officials.
• A smaller Chinese trade surplus weighs on the Aussie as markets look ahead to key US inflation figures.

At around 0.6905, AUD/USD is 0.31% lower on Tuesday at the time of writing, with the Australian Dollar (AUD) surrendering some of Monday's sharp recovery against the US Dollar (USD). Disappointing Chinese trade figures are dampening sentiment, while growing expectations of additional Federal Reserve (Fed) tightening keep the Aussie under pressure.

China's trade surplus fell to $105.28 billion in October, compared with $133.53 billion in September and market forecasts of $125.8 billion. The figures are the latest from Australia's largest trading partner.

Although the surplus shrank, both Chinese exports and imports recorded further year-on-year growth, pointing to resilience in external trade activity. The headline reading nevertheless fell short of expectations, offering little support to the Australian Dollar.

An increasingly hawkish view of the Fed's policy outlook is supporting the US Dollar. Markets now price in an approximately 99% probability of a 25-basis-point interest rate increase in December, according to the CME FedWatch tool, compared with 84% a day earlier.

Speaking on Tuesday, Fed Governor Christopher Waller bolstered those expectations: “We need to raise rates to put downward pressure on inflation.” Waller also acknowledged that monetary policy had proved less restrictive than previously anticipated.

Tuesday's US Consumer Price Index (CPI) release is now the focus for investors. Forecasts point to a 0.3% MoM increase in headline inflation for October, following 0.6% in September. Core CPI is expected to rise 0.2%, easing from the previous 0.3%.

Should inflation exceed forecasts, expectations of further Fed tightening could strengthen, lending additional support to the Greenback and potentially prolonging the decline in AUD/USD. Weaker readings, by contrast, could put the US Dollar under pressure and allow the Aussie to recoup part of its recent losses.

AUD/USD remains under near-term technical pressure

Trading at 0.6906 on the daily chart, AUD/USD retains a bearish near-term bias. Spot remains well below both the 100-day simple moving average (SMA) at 0.7028 and the 200-day SMA at 0.7056. Until the pair can regain these medium-term averages, rallies appear constrained. Meanwhile, the Relative Strength Index (14), at around 40, signals muted momentum, more consistent with a modest recovery than a lasting uptrend.

Selling pressure could return if the pair fails to hold above 0.6894, leaving the recent low near 0.6855 exposed. Below that level, attention would shift back to the March low of 0.6834. A clear break through this support could confirm a more pronounced bearish extension.

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