The AUD/USD pair hit 10-month lows near 0.6840 as hawkish Fed repricing and a widening interest rate gap between the US and Australia pressure the currency.
AUD/USD has fallen three straight days to around 0.6840, its lowest in nearly 10 months, driven by hawkish Fed repricing and a dovish RBA outlook. Markets price an 87% chance of a December Fed hike while RBA cuts of about 28 basis points are priced for 2027, a widening rate gap that pressures the pair further.
Hotter-than-expected US CPI has markets pricing an 87% probability of a December Fed rate hike, with about a 13% chance of a larger 50 basis point move, and Governor Waller supports such increases. Higher expected US rates support the dollar, which is explicitly cited as the reason for the pair's slide to 10-month lows.
Markets speculate the RBA has finished tightening and are pricing roughly 28 basis points of cuts in 2027, removing rate support for the currency. Societe Generale adds that surging bond yields are hitting Australia's leveraged, highly indebted housing market, a structural drag on the Aussie despite elevated domestic inflation.
The Australian Dollar has fallen for three consecutive days, trading near 0.6840 as markets price in an 87% probability of a December Federal Reserve rate hike. While Australian inflation remains elevated at 4.3%, market speculation suggests the Reserve Bank of Australia has concluded its tightening cycle, with 28 basis points of cuts priced for 2027.
Traders now see an 87% probability of a December Fed rate hike after hot US inflation data, while markets expect the RBA to hold rates and even cut around 28 basis points in 2027. The widening interest rate gap has pushed AUD/USD to near 10-month lows around 0.6840.
Recovery looks difficult near term because the drivers are rate-policy based, but stubbornly high Australian inflation, with expectations steady at 5.3% and September CPI at 4.3%, could force the RBA to stay hawkish and limit further losses.
Hotter-than-expected US inflation data has led markets to price an 87% chance of a December Fed rate hike, and Fed Governor Waller has said he would back a quarter-point increase, or even half a point if inflation worsens. This hawkish repricing supports the dollar.
The article reports market pricing of roughly 28 basis points of RBA rate cuts in 2027 and growing speculation that the RBA has reached the end of its tightening cycle, but the RBA itself has not announced any such decision.