Australian Dollar strengthens as RBA maintains hawkish stance

• AUD/USD gains 0.20% on Friday, supported by hawkish comments from Australian policymakers.
• Michele Bullock warns that some upside risks to inflation appear to be materializing.
• The US Dollar remains supported by expectations of further interest rate hikes from the US central bank.

AUD/USD rises 0.20% on Friday to trade around 0.7125 at the time of writing. The Australian Dollar (AUD) benefits from hawkish comments by Reserve Bank of Australia (RBA) officials, who keep the door open to further monetary tightening to bring inflation sustainably back toward the target.

RBA Governor Michele Bullock said during a testimony before a parliamentary committee that inflation remains “too high” and that recent developments suggest some upside risks to prices appear to be materializing, particularly due to tensions in the Middle East.

RBA Deputy Governor Andrew Hauser also adopted a cautious tone on the inflation outlook. He said the key question is whether the monetary tightening delivered so far will be sufficient to return inflation to target within a reasonable timeframe, leaving the door open to further interest rate hikes.

The RBA currently keeps its policy rate unchanged at 4.35%, following three consecutive increases earlier this year. Markets nevertheless expect another increase to 4.6% at the next meeting as policymakers reiterate their determination to contain inflationary pressures.

The upside potential for AUD/USD, however, remains challenged by the strength of the US Dollar (USD). The Federal Reserve (Fed) raised its policy rate by 25 basis points on Wednesday to a range of 3.75%-4%, as widely expected.

Fed Chair Kevin Warsh also delivered a more hawkish message than anticipated, fueling expectations of another interest rate increase this year, potentially as soon as December. The prospect of US interest rates remaining elevated for longer supports the US Dollar and therefore limits the advance in AUD/USD.

The pair is therefore caught between two hawkish monetary policy outlooks. The Australian Dollar benefits from the RBA's warnings about persistent inflation and the possibility of further tightening, while expectations of another Fed rate hike simultaneously help maintain demand for the US Dollar.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7125, holding a neutral near-term bias as the pair hovers just above the rising 100-period simple moving average (SMA) and the underlying uptrend line, both clustered around 0.7122, while remaining capped beneath the 200-period SMA at 0.7159. The Relative Strength Index (RSI) at 56.9 shows mildly positive momentum, suggesting dip-buying interest, but the proximity of nearby overhead levels hints that bulls lack a clear breakout trigger for now.

On the topside, initial resistance emerges at the horizontal barrier near 0.7140, ahead of the 200-period SMA at 0.7159 and a stronger cap at 0.7188. On the downside, the first layer of support is formed by the confluence of the rising trend-line and 100-period SMA around 0.7122, with a deeper structural floor at 0.7075 likely to attract buyers on a more pronounced pullback.

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