The AUD/USD pair slides toward 0.6846 as hotter-than-expected US inflation fuels aggressive Fed hike expectations, contrasting with the RBA's decision to pause and assess data after its November rate hike.
The pair sits near March lows around 0.6846, down 0.28%, as widening policy divergence pressures the AUD: the Fed is fully priced for a December hike with 50-bps risk on the table, while the RBA softened guidance after its 25-bp hike to 4.85% and markets price a 74% chance of a cut by December 2027. Hotter-than-expected US CPI (0.4% MoM vs 0.3% forecast) strengthens the dollar side of the pair further.
The Dollar Index rises 0.68% for a second straight day and approaches its year-to-date high of 102.94 set in October, after October CPI beat forecasts (0.4% MoM headline, 0.3% core) and hawkish Fed officials, including Waller with 50-bps hike risk, led markets to fully price a December hike. Reduced fears of political interference in the Fed add further support.
The Australian Dollar trades near March lows at 0.6846, down 0.28%, as widening policy divergence between the Fed and RBA weighs on the pair. While the Fed is fully priced for a December rate hike following a 0.4% MoM US CPI print, the RBA has softened its guidance after raising rates to 4.85%.
Markets expect the Fed to keep hiking (a December hike is fully priced, with 50-bps risk mentioned), while the RBA softened its guidance after its November hike to 4.85% and futures price a 74% chance of a 25-bp cut by December 2027. The growing policy gap, plus hotter-than-expected US CPI, is pushing the pair toward its March lows around 0.6846.
The RBA raised its cash rate by 25 bps to 4.85% as expected, but it removed the explicit reference to further hikes and Governor Bullock indicated it is 'probably best to pause and assess incoming data,' which weighs on the AUD relative to a hawkish Fed.
Hotter-than-expected US inflation and hawkish comments from multiple Fed officials, including Waller putting a 50-bps December hike on the table, have led markets to fully price a December rate hike. The Dollar Index has risen 0.68% on the day and is approaching its year-to-date high of 102.94.