Widening Fed-RBA policy divergence pushes Australian Dollar below 0.6850

• Positive market sentiment fails to support AUD/USD as it drops 0.27% to trade below 0.6850.
• Markets assign an 87% probability to a 25-basis-point Fed rate increase in December.
• Markets price in rate cuts for 2027 as the RBA is expected to halt tightening.

Pressure from expectations of further Federal Reserve tightening left the Australian Dollar 0.27% lower against the US Dollar on Wednesday, with AUD/USD trading below 0.6850. Economic releases were limited in both Australia and the US.

Why is AUD/USD extending losses as sticky US inflation strengthens Fed rate hike expectations?

Solid gains in US equities are keeping market sentiment upbeat. In currency trading, the US Dollar Index (DXY) is up 0.67% at 102.91, having eased from an 18-month peak of 102.96. The index measures the dollar against a basket of six currencies.

Tuesday’s hawkish comments from Federal Reserve (Fed) officials helped lift the US Dollar. Fed Governor Christopher Waller had indicated that a 0.3% rise in core CPI could lead him to back a 50-basis-point rate increase. The subsequent data met that condition.

October marked the third consecutive month in which underlying inflation rose 0.3% MoM. The headline CPI increase slowed from 0.6% to 0.4% MoM, although it still exceeded the 0.3% forecast.

According to the CME FedWatch Tool, money market pricing put the likelihood of a 25 bps rate increase at 87%, leaving a slim 13% probability that the Fed may opt for a 50 bps hike.

Against this backdrop, AUD/USD is drifting lower as speculation grows that the Reserve Bank of Australia (RBA) has completed its tightening cycle and will keep rates unchanged for the foreseeable future. Prime Terminal data, meanwhile, indicate expectations for 28 basis points of RBA rate cuts in 2027.

Australia’s upcoming releases include November Consumer Inflation Expectations. The October reading stood at 5.3%, compared with 4.9% in September.

For US investors, Thursday brings Initial Jobless Claims, housing figures and speeches by Fed officials, followed by the Producer Price Index (PPI) on Friday.

AUD/USD Price Forecast: What does the technical picture indicate?

At 0.6844 on the daily chart, AUD/USD retains a bearish near-term bias. The spot rate remains well below a cluster of simple moving averages (SMA) around 0.7028 and several former rising trend lines that now provide overhead resistance. A breach of the latest rising support line, now resistance near 0.6926, highlights continued downward pressure. With the Relative Strength Index (14) near 35, momentum is weak but has not yet reached oversold territory. Sellers therefore appear to retain control unless the pair recovers those broken structural levels.

A recovery would first encounter resistance around 0.6926 at the former rising trend line, followed by the convergence of the 50-, 100- and 200-day SMAs near 0.7028. To relieve immediate bearish pressure and clear a path towards 0.7135 and the horizontal barrier at 0.7198, the pair would need a daily close above that band. On the downside, solid structural support only appears around 0.6343, where the long-term descending trend line has become a base. Until AUD/USD overcomes the resistance cluster noted above, it remains exposed to further gradual losses.

(An AI tool assisted in preparing this story’s technical analysis. Learn more.)