Australian Dollar slips as hawkish Fed, elevated US yields sustain USD

AUD/USD extends its decline for the second consecutive day on Thursday, trading around 0.6950, down 0.20% on the day at the time of writing. The Australian Dollar (AUD) remains under pressure against the US Dollar (USD), supported by US Treasury yields hovering near multi-decade highs and expectations of further monetary tightening by the Federal Reserve (Fed).

The benchmark 10-year US Treasury yield eases toward 5.27% on Thursday after reaching 5.36% on Wednesday, its highest level since 2002. Despite this pullback, yields remain elevated, largely driven by rising Oil prices, which are fueling inflation concerns. Growing US government debt, fiscal uncertainty and resilient economic growth are also contributing to upward pressure on yields.

The US Dollar also benefits from the Fed's hawkish stance. The Minutes of the September Federal Open Market Committee (FOMC) meeting, released on Wednesday, revealed unanimous support for a 25-basis-point (bps) interest rate hike, bringing the benchmark rate to a range of 3.75%-4.00%. Most policymakers considered another increase appropriate before year-end amid persistent inflation risks.

Westpac analysts noted that the Minutes reinforced the hawkish tone accompanying the September rate hike, with most participants still favoring additional tightening and nearly all seeing inflation risks tilted to the upside. However, Fed officials did not explicitly commit to another rate hike at the October 27-28 meeting, where markets broadly expect interest rates to remain unchanged.

On Thursday, Fed Governor Christopher Waller reinforced this hawkish outlook, stating that further rate hikes are needed while remaining flexible about the pace of tightening. He described the US labor market as "solid and stable" in September despite slower job creation, adding that inflation remains too high.

The latest employment data also highlight the resilience of the US economy. Initial Jobless Claims fell to 197K in the week ending October 3, compared with 199K previously, coming in below market expectations of 200K. These figures help ease concerns about a sharp deterioration in labor market conditions, giving the Fed additional room to maintain a restrictive monetary policy.

In Australia, however, the latest inflation figures provide some support for the Australian Dollar. Consumer Inflation Expectations climbed to 5.3% in October from 4.9% previously, reaching their highest level in four months. The increase highlights persistent price pressures, particularly amid rising global energy costs.

These figures reinforce speculation about another interest rate hike by the Reserve Bank of Australia (RBA). According to the ASX Rate Tracker, money markets are pricing in a 27% chance of another rate increase to 4.85% at the central bank's next policy meeting. Former RBA board member Ian Harper also suggested that another rate hike this year remains "plausible," although he does not necessarily consider it the most likely scenario.

Despite expectations of further monetary tightening in Australia, AUD/USD remains weighed down by the strength of the US Dollar and elevated US Treasury yields. Geopolitical tensions between Washington and Tehran, along with potential disruptions to shipping routes through the Strait of Hormuz, are also sustaining safe-haven demand, benefiting the Greenback at the expense of risk-sensitive currencies such as the Australian Dollar.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.6954, keeping a mildly bearish tone as it remains below both the 100-period simple moving average (SMA) at 0.6963 and the 200-period SMA at 0.6966. The pair is pressing a nearby pivot at 0.6955, while the Relative Strength Index (RSI) at 48 suggests consolidative rather than trending momentum, hinting that intraday recoveries could stay capped beneath the clustered short-term averages.

On the topside, initial resistance is located at 0.6955, followed by the 100-period SMA at 0.6963 and the 200-period SMA at 0.6966; a sustained break above these would open the way toward 0.6980 and 0.7005, ahead of 0.7045, 0.7075, 0.7105 and 0.7140. On the downside, the nearest support is seen at 0.6907, with a stronger structural floor at 0.6883, where buyers would be expected to show more interest if the current soft bias extends.

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