Australian Dollar lacks bullish conviction as Fed hike bets continue to support USD

• AUD/USD struggles to capitalize on modest intraday gains as the USD sticks to a bullish undertone.
• The hot US CPI and Fed’s Waller’s hawkish comments continue to act as a tailwind for the USD.
• The RBA’s recent dovish shift contributes to capping the Aussie, warranting some caution for bulls.

The AUD/USD pair gains some positive traction on Wednesday and moves away from its lowest level since late March, near the 0.6845-0.6840 zone set the previous day. Spot prices cling to gains near the 0.6875 area through the early European session, though the upside remains capped amid a bullish US Dollar (USD).

Investors remain hopeful about a potential diplomatic breakthrough to end the US-Iran war, which remains supportive of the risk-on impulse and acts as a tailwind for the AUD/USD pair. In fact, US Secretary of State Marco Rubio said on Tuesday that there is no need for major combat operations against Iran. This comes as US President Donald Trump told reporters that there is positive momentum behind negotiations with Iran.

However, the geopolitical risk premium remains in play amid the US-Iran standoff over the Strait of Hormuz and continuing tanker attacks in the waterway. Moreover, firming expectations for further policy tightening by the US Federal Reserve (Fed) help the US Dollar (USD) stand firm near a two-week high, touched in reaction to hotter-than-expected US consumer inflation figures on Tuesday, which caps gains for the AUD/USD pair.

US inflation progress stalls as core pressures stay elevated

Economists at Commerzbank caution that the latest data confirm inflation in the US is still uncomfortably high. They note that “prices are still rising too quickly, even though the increase was somewhat smaller than in September,” and stress that “the rapid decline in inflation that the Fed had hoped for has yet to materialize.” In their view, “core inflation, a key gauge of the underlying trend, thus remains (too) high and is no longer trending downward,” underscoring persistent underlying price pressures despite some moderation at the margin.

Meanwhile, hawkish comments from Fed Governor Christopher Waller prompted traders to price in the possibility of a jumbo 50-basis-point (bps) rate hike in December. This marks a significant divergence in comparison to the Reserve Bank of Australia's (RBA) dovish shift, signaling that the hiking cycle may be at or near its end. This, in turn, holds back traders from placing aggressive bullish bets on the AUD/USD pair and further acts as a headwind.

AUD/USD 4-hour chart

Technical Analysis

The AUD/USD pair keeps a bearish near-term tone under the 50-period Simple Moving Average (SMA) on the 4-hour chart. The pair's location below this key dynamic barrier suggests rallies are likely to be sold into near the said SMA at 0.6955, which needs to be reclaimed to ease the current bearish pressure and open the way toward higher levels.

On the downside, the recent swing low around 0.6857 acts as the first meaningful support zone. A sustained break beneath this floor would reinforce the prevailing downtrend and expose deeper losses in the sessions ahead.

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