Australian Dollar gains following Consumer Price Index data

• Australian Dollar advances as the domestic Consumer Price Index rose 1.3% QoQ in Q3.
• The AUD gains ground from the fading likelihood of RBA rate cuts in the near term.
• The US Dollar struggles as traders expect the Fed to deliver a rate cut on Wednesday.

The Australian Dollar (AUD) advances against the US Dollar (USD) on Wednesday following the release of Australia's Consumer Price Index (CPI) data. Additionally, the AUD/USD pair also receives support from decreasing bets on rate cuts by the Reserve Bank of Australia (RBA).

Australia's Consumer Price Index rose 1.3% quarter-over-quarter (QoQ) in the third quarter (Q3), compared with the 0.7% increase seen in the second quarter. The market consensus was for a growth of 1.1% in the reported period. CPI inflation climbed to 3.2% year-over-year (YoY) in Q3, versus 2.1% prior and above the market consensus of 3.0%.

The RBA Trimmed Mean CPI for Q3 rose 1.0% and 3.0% on a quarterly and annual basis, respectively. Markets estimated an increase of 0.8% QoQ and 2.7% YoY in the quarter to September. The monthly Consumer Price Index jumped by 3.5% YoY in August, compared to the previous reading of 3.0% increase. This figure came in hotter than the expectation of 3.1%.

RBA Governor Bullock reiterated that the labor market remains a little tight, despite the unemployment rate jump being a surprise. Investors are now focused on Wednesday's release of the Q3 inflation data and the September Monthly CPI indicator for additional insight into the future path of interest rates.

US Dollar remains subdued ahead of Fed policy decision

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is remaining subdued and trading around 98.70 at the time of writing. The Greenback struggles as traders expect the Federal Reserve (Fed) to deliver a rate cut on Wednesday
• The Fed is widely expected to lower interest rates by another quarter point, bringing the benchmark rate to 3.75-4.00%, at its October meeting. The CME FedWatch Tool indicates that markets are now pricing in nearly a 97% chance of a Fed rate cut in October and a 96% possibility of another reduction in December.
• The US government shutdown has ignited debate among Federal Reserve officials, as policymakers weigh whether to cut rates soon to support a weakening labor market or maintain current levels amid inflation that remains persistently above the Fed's 2% target.
• The US Bureau of Labor Statistics (BLS) reported on Friday that the US Consumer Price Index (CPI) rose 3.0% year-over-year (YoY) in September, following a 2.9% increase in the prior month. This reading came in below the market expectation of 3.1%. Meanwhile, the monthly CPI increased 0.3%, against the 0.4% rise seen in August. The core CPI increased 0.2% month-over-month, compared to the market consensus of 0.3%, while the yearly core CPI was up 3.0% in September.
• US and Chinese negotiators reached a consensus on major disputes, which paves the way for Presidents Donald Trump and Xi Jinping to meet on Thursday to finalize a trade deal aimed at easing tensions. Officials in Malaysia announced after two days of talks that both sides had agreed on key issues, including export controls, fentanyl, and shipping levies.
• US Treasury Secretary Scott Bessent told CBS News that President Trump's threat to impose 100% tariffs on Chinese goods "is effectively off the table." Bessent added that China has agreed to make "substantial" soybean purchases and to postpone its rare-earth export controls "for a year while they re-examine it."
• The preliminary Australia's S&P Global Manufacturing Purchasing Managers Index (PMI) fell to 49.7 in October from 51.4 prior. Meanwhile, Services PMI rose to 53.1 in October from the previous reading of 52.4, while the Composite PMI increased to 52.6 in October against 52.4 prior.

Australian Dollar tests 0.6600 barrier due to bullish shift

AUD/USD is trading around 0.6590 on Wednesday. Technical analysis of a daily chart suggests a bullish shift as the pair rises above the descending channel. The pair is also trading above the nine- and 50-day Exponential Moving Averages (EMAs), indicating that both short- and medium-term price momentum remain strong.

On the upside, the immediate barrier lies at the psychological level of 0.6600. A break above this level would support the AUD/USD pair to explore the region around the 12-month high of 0.6707, which was recorded on September 17.

The primary support lies at the 50-day EMA of 0.6546, aligned with the nine-day EMA at 0.6545. A break below these levels would revive the bearish bias and prompt the AUD/USD pair to navigate the area around the four-month low of 0.6414, followed by the lower boundary of the descending channel around 0.6370.

AUD/USD: Daily Chart