The Australian dollar strengthened against the US dollar in trading on Wednesday (October 28), driven by growing expectations of an interest rate hike by the Reserve Bank of Australia (RBA) following inflation data that revealed persistent price pressures. The AUD/USD pair hovered around the 0.7035 level, having earlier touched the 0.7055 range—its highest point in over a month. However, this upward momentum began to stall as investors adopted a cautious stance ahead of the Federal Reserve’s (Fed) monetary policy decision.
Australia’s consumer inflation data for September rose by 0.8% month-on-month, surpassing market forecasts of 0.7% and exceeding the 0.4% increase recorded in the previous period. On an annual basis, inflation reached 4.3%, up from 4.0%. Meanwhile, third-quarter inflation climbed by 1.3%, reinforcing concerns that price pressures remain not yet fully under control. These conditions have fueled speculation that the RBA might raise interest rates again at its November meeting to curb inflation.
The increased likelihood of monetary policy tightening in Australia has provided support for the Australian dollar, as higher interest rates tend to enhance the appeal of AUD-denominated assets. Nevertheless, the currency’s gains face headwinds from the resilience of the US dollar. The dollar index held steady around 102.40—near a two-week high—as investors anticipate that the Fed will maintain interest rates within the 3.75%–4.00% range during its October meeting.
Market attention is now focused on the Fed’s commentary regarding the inflation outlook and the future trajectory of interest rates. Should the US central bank maintain a hawkish stance and signal the possibility of a rate hike in December, the US dollar could strengthen further, thereby capping gains for the AUD/USD pair. Conversely, should the Fed signal a more dovish policy stance, the Australian dollar could potentially extend its gains, especially with the support of expectations for an RBA interest rate hike.(CP)