• AUD/USD drops 0.34% to around 0.6960, reversing earlier gains as the US Dollar strengthens.
• US inflation accelerated to 3.7% in September, boosting expectations of further Fed interest rate hikes.
• Australian employment figures on Thursday could provide fresh direction for the Aussie.

AUD/USD reverses its earlier gains on Wednesday, falling 0.34% on the day to trade around 0.6960 at the time of writing. The pair retreats below the psychological 0.7000 level as stronger-than-expected United States (US) inflation data fuels a broad-based rally in the US Dollar (USD), putting renewed pressure on the Australian Dollar (AUD).

The US Consumer Price Index (CPI), released by the Bureau of Labor Statistics (BLS) on Wednesday, showed annual inflation accelerating to 3.7% in September, up from 3.4% in August and above market expectations. Core CPI, which excludes volatile food and energy prices, also rose to 2.6% YoY, compared with 2.4% previously.

On a monthly basis, headline and core inflation increased by 0.6% and 0.3%, respectively, highlighting persistent price pressures in the US economy. These figures reinforce expectations that the Federal Reserve (Fed) may need to maintain a restrictive monetary policy stance or raise interest rates further to bring inflation under control.

Following the release, markets increased the chance of a 25-basis-point (bps) Fed rate hike in October to 47%, compared with 22% the previous day. Investors also assign a 41% chance to another 25-bps increase in December, up from 18% a day earlier.

The repricing of Fed interest rate expectations drives US Treasury yields sharply higher, providing additional support to the Greenback. The benchmark 10-year US Treasury yield climbed near 5.33%, up from around 5.20% before the inflation report, making US Dollar-denominated assets more attractive to investors.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, advances 0.46% to around 102.70, reaching its highest level since April 2025. This broad-based Dollar strength weighs on AUD/USD, reversing the pair's earlier gains.

On the Australian side, investors turn their attention to Thursday's September employment report, which could influence expectations for the Reserve Bank of Australia's (RBA) monetary policy outlook.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.6964, keeping a bearish near-term tone as price holds beneath both the 100-period simple moving average (SMA) at 0.6974 and the 200-period SMA at 0.6968. The latest Relative Strength Index (14) reading at 33 suggests downside momentum is in play but edging toward oversold territory, hinting that while sellers remain in control, the pace of the decline could start to moderate rather than accelerate aggressively.

On the topside, initial resistance is offered by the 200-period SMA at 0.6968, followed by the 100-period SMA at 0.6974, with a stronger barrier at 0.6995 and then 0.7005. Further up, 0.7045, 0.7075, 0.7105 and 0.7140 form a wide cap that would need to be reclaimed to ease the broader bearish pressure. On the downside, immediate support appears at 0.6932, ahead of 0.6904 and 0.6883, where a break would open the way to a deeper slide, while a bounce from this cluster would merely signal consolidation within the prevailing downtrend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.