Australian Dollar edges higher to near 0.7000 on weak US Sentiment

The AUD/USD pair trades with mild gains around 0.6985 during the early Asian session on Monday. Softening US Consumer Sentiment weigh on the US Dollar (USD) against the Australian Dollar (AUD). Traders will keep an eye on the Minutes of the Reserve Bank of Australia meetings, which are due on Tuesday.

The University of Michigan's Consumer Sentiment Index fell to 46.3 in October from 48.1 in September. This figure came in weaker than the market expectations of 47.6. Nonetheless, UoM inflation expectations rose, cementing expectations for a 25 basis points (bps) Fed rate hike at its upcoming meeting.

Markets are pricing in only a 17.7% chance for a Fed rate hike of at least 25 basis points this month, down slightly from 24.4% a week ago, according to CME Fedwatch. Investors are pricing in an 84.1% odds for a hike at the central bank's December meeting.

On the Aussie front, traders reduced their bets on a Reserve Bank of Australia (RBA) rate increase in the November policy meeting after the latest Consumer Price Index (CPI) came in line with expectations. Former RBA board member Ian Harper said that a further interest rate hike this year is "plausible", but not necessarily likely.

Money markets are now betting the Australian central bank will likely keep rates on hold at its next meeting in early November. The odds of a rate hike dropped to around 20%, according to market data from LSEG.

Lower US Treasury volatility offers support to risk-sensitive currencies

Strategists at OCBC highlight that “solid 10yr and 30yr Treasury auctions over consecutive days show there is a level where buyers step in,” helping to steady the rates backdrop after recent turbulence. They note that “Treasury volatility, tracked by the MOVE index, was at the epicentre of the recent global rate volatility before it was overtaken by French government bond volatility,” underscoring how the focus has shifted away from US duration. Looking ahead, OCBC argues that “the recent turn lower in the MOVE index, if sustained, should prevent the wobbling of risk-sensitive currencies like AUD and EM carry trades from turning into a deeper sell-off,” suggesting a more supportive environment for high-beta FX and carry positions.

Fed’s Musalem flags need for further tightening as inflation stays elevated

Fed’s Musalem delivered a clearly hawkish message, with a FXS Speechtracker score of 7.3/10, marginally above the 7.2/10 historical average and signaling a tone slightly firmer than the established baseline. The emphasis that “more monetary policy firming will be required” to bring inflation back to 2% in a timely manner, alongside comments that the economy is “pretty strong” and the job market “balanced and stable,” underscores a bias toward additional rate hikes even as Musalem claims to go into meetings with an open mind. Musalem’s focus on persistent demand pressures, supply shocks, and structurally higher real yields driven by strong capital demand and AI investment points to a view that policy rates may need to stay higher for longer to keep inflation expectations anchored and protect the Dollar’s yield advantage.

The FXS Fed Sentiment Index slipped by 0.25 points to 138.33, indicating a modest pullback in perceived hawkishness despite the speech remaining firmly in tightening territory. With the index well above the neutral 100 mark, the Fed is still seen as hawkish overall, and Musalem’s remarks about considering rate increases and structurally higher rates reinforce that stance even as the incremental shift in the index suggests some moderation at the margin.

Technical Analysis: AUD/USD keeps a bearish vibe below the 100-day SMA

In the daily chart, AUD/USD holds a bearish near-term bias as price sits beneath the 100-day simple moving average (SMA) and the Bollinger Bands’ 20-day middle SMA, keeping the broader tone capped after the recent slide from the 0.72 area. The Relative Strength Index (14) at 40.9 remains below the midline, hinting at lingering downside pressure rather than oversold conditions, while the lower Bollinger band near 0.6889 marks the next volatility floor below the market.

On the topside, initial resistance emerges at the Bollinger middle band around 0.7020, followed by the 100-day SMA at 0.7045, a zone that would need to be reclaimed to ease the current bearish tone, with a more distant hurdle at the upper Bollinger band near 0.7155. On the downside, the only nearby structural support is seen at the lower Bollinger band at 0.6890, where a break would open the door to a deeper decline, while holding above this band would suggest consolidation within the current downtrend.