AUD/USD Price Forecast: Which Way Will the Pair Break Near 0.6900?

AUD/USD holds a narrow range near 0.6925, with October US CPI data now in focus.
Fed interest rate expectations are unlikely to change materially after the US CPI release unless the figures deviate significantly.
A Fed interest rate hike next month remains the firm expectation in financial markets.

Range-bound trading persists in AUD/USD during Tuesday’s European session, with the Australian Dollar (AUD) broadly unchanged against the US Dollar (USD) near 0.6925. Investors are turning their attention to October Consumer Price Index (CPI) figures from the United States (US), due at 13:30 GMT.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Wednesday’s US inflation release is forecast to show headline CPI rising to 3.9% Year-on-Year (YoY), compared with the previous 3.7% reading. An increase is also anticipated in core CPI, which strips out volatile food and energy components, to 2.8% from 2.6%.

Unless the figures diverge sharply from expectations, the US CPI release is unlikely to materially alter market views on the Federal Reserve’s (Fed) monetary policy outlook. Falling oil prices have caused global inflation expectations to become de-anchored.

Traders remain confident of a 25 basis points (bps) Fed rate increase at the December meeting, taking rates to the 4.00%-4.25% range, according to the CME FedWatch tool. The probability attached to this hawkish December outcome has climbed from 77.4% a week ago to 84.2%, the tool indicates.

A robust October US Nonfarm Payrolls (NFP) report prompted traders to increase their hawkish Fed bets. Figures released on Friday put new jobs at 165K, well above both the 65K forecast and the previous reading of 60K.

For the Australian Dollar, the next focus is November’s Consumer Inflation Expectations report, due on Thursday. With policymakers’ recent comments signalling considerable concern over elevated inflation, the figures are likely to have a significant bearing on expectations for the Reserve Bank of Australia’s (RBA) monetary policy.

RBA Deputy Governor Andrew Hauser said last week: “Inflation is too high, whichever measure you use,”

AUD/USD Technical Analysis: Can the Pair Overcome the 20-Day EMA?

A near-term downside bias persists on the daily chart, where AUD/USD trades at 0.6926 below the 20-day Exponential Moving Average (EMA) near 0.6977. Although the pair is holding marginally above the former rising support line around 0.6914, the moving average continues to cap prices. With the Relative Strength Index (14) in the low-40s, momentum remains subdued, suggesting that recovery attempts could face difficulty below the overhead average.

To relieve immediate bearish pressure, AUD/USD would need a daily close above initial resistance at the 20-day EMA of 0.6977. Initial support lies in the nearby trend-line zone around 0.6914. A decisive breach of that area would open the way to lower levels and strengthen the pair’s prevailing weak tone.

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

US Dollar: Frequently Asked Questions

What role does the US Dollar play?

As the official currency of the United States of America, the US Dollar (USD) also circulates alongside local banknotes as the ‘de facto’ currency in a significant number of other countries. No currency is traded more widely: according to 2022 data, it accounts for over 88% of worldwide foreign exchange turnover, representing average daily transactions of $6.6 trillion. The USD replaced the British Pound as the world’s reserve currency after the Second World War. Gold backed the US Dollar for most of its history, until the Bretton Woods Agreement in 1971 brought an end to the Gold Standard.

How does Federal Reserve policy affect the US Dollar?

Monetary policy set by the Federal Reserve (Fed) is the single biggest influence on the US Dollar’s value. Achieving price stability, or controlling inflation, and promoting full employment are the Fed’s two mandates. Adjustments to interest rates are its main means of pursuing these goals. If prices rise too rapidly and inflation exceeds the Fed’s 2% target, the central bank raises rates, supporting the USD. Conversely, inflation below 2% or an excessively high Unemployment Rate may prompt the Fed to cut interest rates, putting pressure on the Greenback.

How does Quantitative Easing work, and what does it mean for the US Dollar?

When conditions become extreme, the Federal Reserve can print additional Dollars and introduce quantitative easing (QE), substantially expanding credit flows through a stalled financial system. This unconventional policy is used when credit dries up because banks, fearing counterparty defaults, refuse to lend to one another. It serves as a last resort when interest rate cuts alone are unlikely to deliver the required outcome. During the Great Financial Crisis in 2008, the Fed chose this approach to tackle the credit crunch. Under QE, newly printed Dollars are used to purchase US government bonds, mainly from financial institutions. The process generally weakens the US Dollar.

How does Quantitative Tightening work, and what does it mean for the US Dollar?

Usually supportive of the US Dollar, quantitative tightening (QT) reverses the easing process. The Federal Reserve ceases bond purchases from financial institutions and, as bonds in its portfolio mature, does not reinvest the principal in further purchases.