AUD/USD is recovering toward 0.7122 after opening Friday on a softer footing, as renewed concerns about Australian inflation strengthen expectations that the Reserve Bank of Australia may need to tighten policy again. RBA Governor Michele Bullock said inflation remains too high and warned that new upside risks are beginning to emerge, including pressures linked to the Middle East conflict and stronger global investment.
The Australian dollar was around 0.7108 against the U.S. dollar at the RBA’s latest published September 17 reference snapshot, keeping the currency close to the 0.71 area.
RBA Reopens the Rate Debate
Bullock told a parliamentary committee Friday that Australia’s inflation outlook has deteriorated at the margin and that some previously identified upside risks are now materializing. She pointed to higher energy and other input costs associated with the Middle East conflict, while the RBA has also identified strong global investment as a source of price pressure.
RBA Deputy Governor Andrew Hauser also indicated that policymakers are assessing whether earlier tightening will be sufficient to return inflation to target within a reasonable period. Market participants are now assigning a high probability to another RBA increase later this month.
The central bank currently keeps its cash rate at 4.35%, after three 25-basis-point increases earlier in 2026. Its next policy decision is scheduled for September 29.
Australia’s July inflation data showed headline CPI at 3.5% year over year, down from 3.8% in June, while trimmed-mean inflation remained at 3.6%. That leaves underlying price growth above the RBA’s 2%–3% target range.
Fed Hike Keeps Dollar Competitive
The RBA’s increasingly cautious inflation stance is supporting the Australian dollar, but the U.S. dollar retains an important interest-rate advantage after the Federal Reserve raised its policy rate by 25 basis points to 3.75%–4.00% on September 16. The Fed’s latest projections also point to one additional rate increase in 2026, keeping U.S. monetary policy restrictive.
The post-meeting dollar rebound has limited AUD/USD gains. Reuters reported that the U.S. Dollar Index climbed toward a five-week high following the Fed decision before easing as Treasury yields and oil prices retreated.
That leaves AUD/USD sensitive to the relative policy outlook. Further RBA tightening expectations could narrow the interest-rate gap, while another Fed increase would work in the opposite direction.
The near-term fundamental drivers are:
- RBA: Inflation concerns are increasing expectations for another hike.
- Fed: Policy remains restrictive after September’s 25-basis-point increase.
- Risk sentiment: Middle East tensions continue to influence commodities and currencies.
0.7142 Caps the Recovery
On the daily chart, AUD/USD is trading near 0.7124 and remains below the 20-day Exponential Moving Average (EMA) at 0.7142. That average is the first major technical barrier for buyers and remains important after the pair’s recent decline.
The Relative Strength Index (RSI) near 48 is almost neutral, showing that selling pressure has eased without establishing a strong bullish trend. A daily close above the 20-day EMA would provide the first stronger signal that the recent correction is losing momentum.
On the downside, the September 16 low at 0.7075 is the immediate support. A break below that level would return the pair to the lower part of its recent trading range and weaken the recovery attempt.
The key levels are:
- Resistance: 0.7142
- Immediate support: 0.7075
- Momentum: RSI near 48
- Trend reference: 20-day EMA at 0.7142
A sustained move above 0.7142 would improve the short-term technical structure and reopen higher levels. Failure to clear that barrier, followed by a break under 0.7075, would keep the broader corrective pattern intact.
Conclusion
AUD/USD is finding support from a more cautious RBA outlook as Governor Bullock warns that inflation risks are increasing. The 4.35% RBA cash rate and expectations for further tightening offer the Australian dollar a potential rate advantage, but the Federal Reserve’s recent hike and prospect of another increase continue to support the U.S. dollar. Technically, 0.7142 is the key recovery barrier, while 0.7075 is the first downside trigger. A sustained break of either level would provide clearer evidence about the pair’s next direction.
Sources & Methodology
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