Aussie Dollar at the Crossroads: Will the RBA Spark a Breakout or a Pullback?

Hot Inflation Meets an Oil Shock: What Is Driving the Aussie

The Aussie is caught between a hawkish RBA, a firm US dollar and an oil market driven by the conflict involving the US, Israel and Iran.

Australian CPI rose 4.3% year over year in September as of Oct 28, up from 4.0% in August and above the 4.2% consensus. RBA Governor Michele Bullock said the price pressures the bank had been worried about were starting to emerge. As of Oct 30, the ASX RBA Rate Tracker showed nearly an 80% chance of a 25 basis point hike to 4.85% at the Nov 3 meeting, up from 62% before the data. The RBA has already hiked four times this year.

In the US, the Fed held rates at 3.75% to 4.00% on Oct 28 in a 10 to 2 vote, with Lisa Cook and Beth Hammack dissenting in favor of a hike. Chair Kevin Warsh said inflation remains too high and that 2% remains the target. As of Oct 30, CME FedWatch priced a 74.9% chance of a hike in December.

Risk sentiment is the swing factor. As of Oct 29, the Nasdaq fell 1.4% and the S&P 500 slipped 0.3%. On Oct 30, oil rose more than 2% after a tanker was struck in the Strait of Hormuz and the US renewed threats of strikes on Iran, even as Qatari mediators returned to Tehran. WTI was above $102 as of Oct 30 and on pace for a fourth monthly gain. Higher oil feeds inflation worries and risk off flows, which can weigh on a risk sensitive currency like the Aussie.

China remains a soft spot. As of Oct 30, the most traded Dalian iron ore contract was at 672 yuan per metric ton, after touching its weakest level since Sept 2024 on Oct 27, with Chinese port stocks at 148.05 million tons.

What the Market Has Done

• Since Feb, the market has been in a sideways consolidation range between 0.72 (Daily level 1), which is also CVAH, and 0.69 (Daily level 2), which is in the vicinity of CVAL.
• At the start of May, the market probed above 0.72 and did a liquidity check, but found no more sellers willing to bid prices higher. As a result, the market fell back into the range.
• Since the end of June, buyers have stepped up bids, as shown by the ascending trendline within the consolidation range.
• As of Oct 30, the market is at 0.704 (Mid range), which is also confluent with yearly VWAP and CVPOC.

What to Expect in the Coming Weeks

Watch 0.704 (Mid range), confluent with yearly VWAP and CVPOC, and 0.69 (Daily level 2), which is near CVAL. The scenarios below are framed for the next few weeks to a month.

Neutral Scenario

• If sellers defend 0.704 and hold offers here, a possible rotation back down toward 0.69 (Daily level 2) is expected, where buyers are expected to respond, resulting in two way rotation and price compression lower.
• A possible supporting condition for this scenario is an RBA hike that is largely priced in and delivered with no new guidance, while oil stays headline driven and incoming US data leaves December Fed hike pricing little changed. 

Bullish Scenario

• If buyers are able to bid prices above 0.704, possible movement back up through the consolidation range toward 0.72 (Daily level 1, CVAH) could unfold, where responsive sellers are expected.
• If there are none, a possible break above 0.72 could lead to imbalance out of the consolidation balanced range, with an upside objective near 0.73.
• A possible trigger is an RBA hike to 4.85% on Nov 3 paired with guidance for further tightening, alongside easing oil prices if Qatari mediation advances talks between the US and Iran.

Bearish Scenario

• If buyers are not able to defend and hold bids at 0.69 (Daily level 2), imbalance down is possible, with a move toward 0.673 (Daily level 3), where buyers are expected to respond.
• A possible trigger is a breakdown in US and Iran diplomacy with renewed strikes, which could push oil higher, drive risk off flows and lift the US dollar, especially if firm US data strengthens December Fed hike bets.

Conclusion

Technically, 6A is balanced at the middle of a range that has held since Feb, and 0.704 and 0.69 are the levels that could decide the next move. Fundamentally, the Nov 3 RBA decision, incoming US data that shapes December Fed hike bets and oil headlines out of the Middle East are the catalysts that could tip the balance. Will the RBA deliver the hawkish push buyers need, or will risk off flows pull the Aussie back toward the lower half of the range? Share your view in the comments.

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Disclaimer:

This article is provided for informational and educational purposes only and does not constitute financial, investment, or trading advice. The analysis presented reflects the author’s market observations and opinions at the time of writing and is not a recommendation to buy or sell any futures contract, security, or financial instrument. Futures trading involves significant risk and is not suitable for all market participants. Losses may exceed initial margin deposits, and market conditions can change rapidly.

Any scenarios, levels, or market expectations discussed are hypothetical in nature and are intended solely to illustrate potential market behavior. They do not represent actual trading results and should not be interpreted as guarantees of future performance. Past performance, market behavior, or historical price action are not indicative of future outcomes.

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