Australian Dollar dips under 0.6850 as Fed-RBA policy divergence widens

The Australian Dollar slipped under 0.6850 against the US Dollar on Wednesday, reflecting a widening gap in monetary policy between the Federal Reserve and the Reserve Bank of Australia. With limited economic data from both nations, market expectations for further Federal Reserve rate hikes weighed on the AUD/USD pair. The US Dollar Index gained 0.67% to 102.91, recovering from an 18-month peak of 102.96 after hawkish remarks from Fed officials.

Fed Governor Christopher Waller suggested a 50-basis-point rate hike could be warranted if core CPI rose by 0.3%, a scenario that materialized as headline CPI increased by 0.4% MoM, surpassing expectations. Australia's RBA is likely to maintain its current rates for the foreseeable future, with a potential 28-basis-point cut slated for 2027.

Technical analysis indicates a bearish short-term outlook for AUD/USD, trading near 0.6844, below key moving averages and trend lines. A break below the current support level near 0.6926 could fuel further declines, while a close above 0.7028 would signal a potential rebound.