Australian Dollar holds above 0.7050 as hot CPI boosts RBA hike bets

The AUD/USD drifts higher by 0.40% on Wednesday after the Federal Reserve held rates unchanged, while Fed Chair Kevin Warsh hinted that "officials had made clear our readiness to act as circumstances require, and we have shown our willingness to act.” The AUD/USD trades at 0.7053.

AUD/USD extends gains as Australian inflation strengthens the case for November tightening despite Warsh's hawkish stance

The highlight of the week passed, and the financial markets calmly digested the Fed’s decision and Warsh's remarks. Money markets expected a hold, and in the press conference, Warsh reaffirmed the committee’s commitment to drive inflation to the Fed’s 2% goal.

Furthermore, he added that tightening policy is working but refrained from calling financial conditions tight. Warsh said there is no “soft inflation target” and stated that the price stability target is 2%, as measured by the Personal Consumption Expenditures (PCE).

Before, the Fed, in its monetary policy statement, recognized that economic activity is strong, that job market gains “have kept pace with the workforce,” and that, although inflation is high, it would wait for more data to assess the appropriate policy stance.

Aside from the Fed’s decision, the docket remained absent. The swaps market had priced in an 85% chance of a 0.25% rate hike in December, according to Prime Terminal.

In Australia, the Trimmed Mean CPI in September rose by 3.7% YoY, up from 3.5%, cementing the case for another rate increase. After the data release, the Reserve Bank of Australia (RBA) Deputy Governor Hauser said that “inflation is too high.”

ANZ analysts, in a note, commented that they expect a 25 basis points rate hike in November and “expect to see upward revisions to the RBA’s inflation forecasts which will be published in the November SMP.”

On the calendar

The Aussie’s docket is absent. In the US, the schedule is busy with the release of the Fed’s favorite inflation measure, the Core PCE, Gross Domestic Product (GDP) figures and jobless claims.

AUD/USD Price Forecast: Technical outlook