Australian Dollar declines below 0.6800 on hawkish Fed, Chinese data in focus

• AUD/USD softens to around 0.6775 in Monday’s early Asian session.
• Rising bets on a larger Fed rate hike lift US Treasury yields and the US Dollar.
• Traders brace for Chinese economic data on Monday ahead of RBA Minutes.

The AUD/USD pair declines to near 0.6775 during the early Asian session on Monday. The US dollar (USD) edges higher against the Australian Dollar (AUD) on hawkish comments from Federal Reserve (Fed) officials. Traders await China’s Industrial Production and Retail Sales data on Monday for fresh impetus.

Kansas City Fed President Jeff Schmid said Sunday that the central bank has the tools and responsibility to address price pressures that are “running too hot,” and the central bank “has some work to do on inflation.” Meanwhile, Boston Fed President Susan Collins stated that she supported a steady pace of modest interest rate increases because that path of action better managed economic uncertainties.

Hawkish remarks from Fed officials and this latest stronger-than-expected US inflation data have left traders weighing the prospect of a larger-than-usual Fed rate hike next month. Traders are pricing in a roughly 93.5% chance of a 25-basis-point hike next month, according to the CME FedWatch tool.

Reserve Bank of Australia (RBA) board members were split on whether to lift interest rates for the fifth time in a year. Minutes from the RBA's November meeting will be released on Tuesday and will lay out in detail the reasons for the decision to boost the cash rate to 4.85%, the highest level in 18 years.

AUD support erodes as RBA tightening runs its course and Fed repricing widens rate gap

Analysts at MUFG note that the “pre-emptive nature of monetary tightening in Australia has benefitted the Australian Dollar but time appears to have run out for providing support for the currency as investors conclude that RBA is running out of scope for additional rate hikes at a time when investors are reappraising their views on additional Fed rate hikes.” They highlight that the RBA has already delivered five hikes this year, leaving the policy rate at “4.85%…the highest since 2008 when the RBA was cutting rates into the Global Financial Crisis.” As a result of this front-loaded tightening, MUFG points out that “the OIS curve through to Q4 2027 shows mostly a flat curve but a probability of a rate cut (-15bps priced) in Q3-Q4 next year.”

By contrast, the Fed is seen as having considerably more work to do. MUFG underscores that “given the Fed has raised rates just once, the market has another 85bps of hikes priced – that’s a 100bp swing in expected policy rates by Q4 next year.” This repricing has driven a sharp deterioration in relative rate support for the Aussie, with MUFG noting that “the 2-year AU-US swap spread has moved 100bps lower since peaking in early April and has dropped 30bps just in the last week or so.” The latest RBA decision also revealed growing internal resistance to further tightening, as “the RBA vote when it hiked this month (6-3) underlined the growing opposition to hikes and RBA Governor Bullock signalled a pause to assess given some of the tightening will not have hit the real economy.”

Signs that higher rates are biting are already emerging in the domestic data. MUFG stresses that “where you’d expect to see it first has started to come through – Australian home loans plunged 15.5% in Q3, double what was expected and the biggest drop in the data series back to 2002.”

Against this backdrop, MUFG argues that “we view AUD as probably the most vulnerable currency in a sharp AI-related sell-off.” They cite the currency’s “relatively high macroeconomic exposure,” alongside “energy and commodity exposures that would result in a negative terms of trade hit,” and its status as “high-beta and hence [it] would underperform in a scenario of tightening financial conditions and a rise in financial market volatility.” Recent market behaviour is seen as reinforcing this vulnerability: “in the recent 6-day period of AI selling through to 5th November, AUD was the worst performing G10 currency.” MUFG notes that “despite the AUD sell-off from the most recent high in September, AUD is still the 2nd best performing G10 currency on a year-to-date basis,” but cautions that “if the AI sell-off intensifies again, AUD remains more vulnerable than other G10 currencies.”

Schmid flags stubborn inflation, reinforcing hawkish Fed bias

Fed’s Schmid delivers a slightly more hawkish-than-usual message, with a 7/10 FXS Speechtracker score marginally above the 6.9/10 historical average, underscoring that “work containing inflation has only gotten harder” and that inflation is “uncomfortably above” the 2% target. By stressing that inflation would still be around 3% even excluding energy and that the labor market is largely in balance, Schmid frames the problem as broad-based price pressures rather than wage-driven, while emphasizing that demand management is the Fed’s key tool and pushing back on the idea that policy should target specific prices, including AI-related tech goods.

The FXS Fed Sentiment Index rose by 1.00 points to 148.44, firmly in hawkish territory and consistent with the slightly elevated FXS Speechtracker score. This move signals that markets should expect the Fed to maintain a tightening bias, with the Dollar likely to stay supported as policy remains focused on reining in persistent inflation.

Technical Analysis: AUD/USD retains a negative outlook below the 100-day SMA

In the daily chart, AUD/USD extends its decline beneath the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day SMA center, which together define a firmly bearish near-term structure. The pair is holding just above the lower Bollinger Band, while the Relative Strength Index (14) at around 30.6 flirts with oversold territory, suggesting that while downside pressure dominates, selling momentum could be nearing exhaustion rather than strengthening.

On the topside, initial resistance emerges at the Bollinger 20-day SMA near 0.6950, followed by the 100-day SMA at 0.7025 and then the upper Bollinger Band at 0.7135, forming a broad supply zone that would cap any corrective bounce. On the downside, the immediate support is the lower Bollinger Band at 0.6768; a decisive break beneath this floor would open the way for an extension of the downtrend, while holding above it keeps scope for a modest rebound toward the 0.6950 area.

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