Australian dollar extends gains ahead of inflation data, Fed decision

Daily Currency Update

The Australian Dollar (AUD) edged higher against the U.S. Dollar (USD) on Tuesday, extending its winning streak for a fifth consecutive session as the greenback weakened ahead of the Federal Reserve’s closely watched policy decision on Wednesday. At the time of writing, the AUD/USD pair was trading around US$0.6583, up 0.45% on the day and marking its strongest level in more than two weeks. The move comes as traders weigh diverging policy outlooks between the Reserve Bank of Australia (RBA) and the U.S. Federal Reserve, while positioning ahead of Australia’s third-quarter inflation data due early Wednesday. The release is expected to provide critical insight into the pace of domestic price growth and influence expectations for the RBA’s monetary policy trajectory in the months ahead. Economists anticipate the Consumer Price Index (CPI) will show a quarterly increase of 1.1% in the three months to September, up from 0.7% in the June quarter. On an annual basis, inflation is forecast to accelerate to 3.0% from 2.1%, highlighting continued pressure in the cost of living despite moderating global price trends. The RBA’s preferred core inflation gauge, the trimmed mean CPI, is expected to climb 0.8% quarter-on-quarter and hold steady at 2.7% year-on-year, suggesting underlying price pressures remain within the central bank’s target range but still elevated. Meanwhile, the monthly CPI indicator for September is projected to rise to 3.1% from 3.0% in August. A stronger-than-expected reading could bolster bets that the RBA will maintain a cautious tone or potentially signal readiness to tighten policy further at its next meeting on November 4, particularly if inflation appears to be re-accelerating. Markets currently expect the central bank to keep the cash rate unchanged but acknowledge that persistent price pressures could push policymakers to extend their tightening bias into early 2026. Across the Pacific, the U.S. Dollar remained under pressure ahead of the Federal Reserve’s policy announcement on Wednesday. Markets widely expect the Fed to deliver a 25-basis-point rate cut, its second consecutive reduction this year, as officials balance slowing economic growth with persistent inflation concerns. The move is largely priced in by traders, with investors instead watching for any shift in the Fed’s forward guidance or language around the pace of future easing. The combination of a softer greenback and firmer domestic data has helped support the Australian Dollar in recent sessions. A stronger CPI print could further lift the currency, while a downside surprise may temper expectations for additional RBA tightening and weigh on the Aussie in the near term.