The US dollar is receiving support from increasingly hawkish expectations surrounding Federal Reserve monetary policy following the release of the latest inflation data. In September, the Consumer Price Index (CPI) increased from 3.4% to 3.7% year-on-year, exceeding forecasts of 3.6%, while the core indicator rose from 2.4% to 2.6%, compared with expectations of 2.5%. Meanwhile, the Producer Price Index (PPI) accelerated from 5.6% to 6.3% instead of declining to the expected 5.3%, while the core measure increased from 4.8% to 5.0%, against forecasts of 4.4%. Inflationary pressure remains well above the Federal Reserve's 2.0% target, and the probability of an interest rate increase in December is estimated at 88.7%, according to the Chicago Mercantile Exchange (CME) FedWatch Tool. Nevertheless, comments from Fed officials following the release of the data provided little clarity on the timing of further monetary tightening, partially reassuring investors. Cleveland Federal Reserve Bank President Beth Hammack acknowledged that borrowing costs might need to rise more aggressively if public inflation expectations deteriorate significantly. However, other members of the Federal Open Market Committee (FOMC) maintained a more cautious position, while Federal Reserve Chair Kevin Warsh emphasised that decisions at upcoming meetings were not predetermined and would depend on incoming economic data. The influence of monetary policy expectations on the currency pair was also discussed in our previous AUD/USD forecast.
Nevertheless, the asset's recovery remains fragile, as Australian labour market data released last week showed signs of cooling. In September, the unemployment rate stood at 4.7%, exceeding forecasts of 4.6% and remaining unchanged from the revised August reading. Employment declined by 39.3K instead of increasing by the expected 19.6K, potentially limiting further interest rate increases by the Reserve Bank of Australia (RBA). Today, RBA Assistant Governor Christopher Kent acknowledged that the labour market was showing signs of weakening and that expectations of further monetary tightening had declined. However, he cautioned against drawing firm conclusions from a single monthly report. The quarterly inflation figures, scheduled for release on October 28, could significantly influence the regulator's next decision.
Overall, considering the fundamental factors, the AUD/USD pair is expected to resume its downward movement in the medium term.
Support and resistance levels
The trading instrument has broken below the lower boundary of the ascending channel and tested 0.6932 (50.0% Fibonacci retracement). If the price consolidates below this level, a decline toward 0.6835 (Murray level [0/8]) and 0.6713 (38.2% Fibonacci retracement, Murray level [–2/8]) is expected. However, if the price breaks above the upper Bollinger Band at 0.7080 (Murray level [4/8]), growth could resume toward 0.7202 (Murray level [6/8]) and 0.7324 (Murray level [8/8]).
Technical indicators maintain a sell signal: the Bollinger Bands and Stochastic oscillator are turning downward, while the MACD histogram remains stable in negative territory.
Resistance levels: 0.7080, 0.7202, 0.7263.
Support levels: 0.6932, 0.6835,
