Why is the Australian Dollar slipping towards 0.6900 as expectations of a Fed rate hike strengthen?

• Renewed US Dollar strength weighs on the Australian Dollar on Tuesday, reversing part of Monday's advance.
• Expectations of another December interest rate hike gain support from hawkish remarks by Federal Reserve officials.
• The Aussie faces additional pressure from China's smaller trade surplus as investors look ahead to key US inflation figures.

Selling pressure returns to the Australian Dollar (AUD) against the US Dollar (USD) after Monday's sharp recovery, leaving AUD/USD trading near 0.6905 on Tuesday, 0.31% lower on the day at the time of writing. Growing expectations of further monetary tightening by the Federal Reserve (Fed) continue to weigh on the Aussie, with disappointing Chinese trade figures also dampening sentiment.

China, Australia's largest trading partner, reported an October trade surplus of $105.28 billion, below the $125.8 billion expected by markets. The latest figure marked a decline from September's $133.53 billion.

Annual growth in both Chinese exports and imports continued despite the smaller surplus, pointing to resilience in external trade activity. Even so, the headline reading fell short of expectations and offers little support to the Australian Dollar.

Increasingly hawkish expectations for the Fed's policy path are lending support to the US Dollar. Markets are now pricing in an approximately 99% probability of a 25-basis-point interest rate hike in December, according to the CME FedWatch tool, compared with 84% a day earlier.

These expectations received further backing on Tuesday from Fed Governor Christopher Waller, who said, “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 in focus for investors. Forecasts put October's monthly headline inflation increase at 0.3% MoM, against 0.6% in September. Core CPI, meanwhile, is expected to rise 0.2%, easing from the previous 0.3%.

An upside inflation surprise could bolster expectations of further Fed tightening, giving the Greenback additional support and potentially deepening AUD/USD's losses. Softer readings, by contrast, could put pressure on the US Dollar and allow the Aussie to recoup part of its recent decline.

AUD/USD technical analysis: Could selling pressure deepen?

A bearish near-term bias persists on the daily chart, where AUD/USD trades at 0.6906, well below the 100-day simple moving average (SMA) at 0.7028 and the 200-day SMA at 0.7056. Until the pair regains these medium-term averages, its failure to do so suggests that rallies remain constrained. With the Relative Strength Index (14) near 40, momentum appears subdued, pointing to a modest recovery rather than a lasting uptrend.

Selling could pick up again if the pair fails to hold above 0.6894, leaving the recent low near 0.6855 exposed. Below that level, attention would return 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.)