0.6900: AUD/USD Price Forecast Near a Make-or-Break Point

0.6925: AUD/USD Holds Steady Ahead of October US CPI Data.
Unless US CPI deviates substantially from expectations, its effect on the Fed interest rate outlook is expected to be modest.
A Fed interest rate increase next month remains the firm expectation in financial markets.

AUD/USD is little changed near 0.6925. The Australian Dollar (AUD) remains rangebound against the US Dollar (USD) in Tuesday’s European session as investors turn 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

A rise to 3.9% Year-on-Year (YoY) from 3.7% is forecast for Wednesday’s US headline CPI release. Core CPI, which strips out volatile food and energy items, is likewise projected to accelerate, reaching 2.8% after the previous 2.6% reading.

Unless the figures diverge sharply from forecasts, the US CPI release is expected to have little influence on expectations for the Federal Reserve’s (Fed) monetary policy outlook. Falling oil prices have caused global inflation expectations to become de-anchored.

A 25 basis points (bps) Fed rate increase to a 4.00%-4.25% range at the December meeting is firmly anticipated by traders, according to the CME FedWatch tool. The tool puts hawkish expectations for that meeting at 84.2%, up from 77.4% a week earlier.

Strong October US Nonfarm Payrolls (NFP) figures prompted traders to increase their hawkish Fed bets. Friday’s release reported 165K new jobs, well above both the 65K forecast and the previous reading of 60K.

For the Australian Dollar, attention is on November Consumer Inflation Expectations, due on Thursday. The release is likely to materially influence expectations for Reserve Bank of Australia (RBA) monetary policy. Recent comments from policymakers have indicated considerable concern over elevated inflation.

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

0.6926: AUD/USD Technical Outlook

AUD/USD stands at 0.6926 on the daily chart. Although it remains just above the former rising support line near 0.6914, the 20-day Exponential Moving Average (EMA) around 0.6977 continues to cap the pair. The near-term bias therefore remains negative while the price is below this dynamic resistance. With the Relative Strength Index (14) in the low-40s, momentum is muted, suggesting that recovery attempts may struggle below the overhead moving average.

The 20-day EMA at 0.6977 provides initial resistance. Easing immediate bearish pressure would require a daily close above it. First support sits around the nearby trend line at 0.6914. A decisive break beneath this area would open the way to lower levels and strengthen the prevailing soft tone in AUD/USD.

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

US Dollar: Key Questions Answered

US Dollar: Currency Status and Global Role

As the official currency of the United States of America, the US Dollar (USD) also circulates alongside local banknotes in a significant number of other countries as their ‘de facto’ currency. Data from 2022 show that it accounts for over 88% of global foreign exchange turnover, equivalent to average daily transactions of $6.6 trillion. This makes it the world’s most actively traded currency. The USD replaced the British Pound as the global 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.

Federal Reserve Policy: The Effect on the US Dollar

Monetary policy set by the Federal Reserve (Fed) is the single biggest influence on the US Dollar’s value. The Fed pursues two mandates: stable prices through inflation control, and full employment. Interest rate adjustments are its main means of meeting these objectives. Inflation above the Fed’s 2% target, with prices climbing too rapidly, prompts rate increases that support the USD. Conversely, the Fed may cut interest rates if inflation drops below 2% or the Unemployment Rate is too high, putting pressure on the Greenback.

Quantitative Easing: Its Purpose and US Dollar Impact

Printing additional Dollars and implementing quantitative easing (QE) are also options for the Federal Reserve in extreme circumstances. Through QE, the Fed sharply expands the flow of credit 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 QE to tackle the credit crunch. The process involves printing more Dollars to purchase US government bonds, mainly from financial institutions. The US Dollar typically weakens as a result of QE.

Quantitative Tightening: The Implications for the US Dollar

In the reverse process, quantitative tightening (QT), the Federal Reserve halts bond purchases from financial institutions. It also refrains from reinvesting principal repaid on maturing bonds in further purchases. This policy generally supports the US Dollar.