The Australian Dollar (AUD) declined by over 0.29% on Wednesday, with the AUD/USD pair trading at 0.6963, following the release of the Federal Reserve's minutes which indicated that members expect another rate hike by the end of the year [1]. The minutes revealed a split among board members, with some viewing the September move as precautionary and others anticipating further hikes. Notably, 'several participants' did not see policy as restrictive or only mildly restrictive [1]. Despite the hawkish tone, money markets remain skeptical about an October rate hike, assigning a 78% probability to a 25-basis-point increase at the December meeting, according to the CME FedWatch Tool [1].
Market sentiment turned negative, as reflected by losses in US equity markets and a firm US Dollar, with the US Dollar Index (DXY) rising 0.40% to 102.24 [1]. US Treasury yields fell, while oil prices rose modestly amid increased Iranian attacks in the Strait of Hormuz, adding to geopolitical risks [1]. ANZ analysts noted that crude oil exports exceeded 18 million barrels per day in the last week of September, primarily from the UAE, which has become a key transit point for oil shipments through the strait [1].
US consumer sentiment also deteriorated, with the New York Fed Survey of Consumers showing that inflation expectations for one year rose from 3.6% to 3.9%, and three- and five-year expectations at 3.3% and 3%, respectively [1]. In Australia, there were no major economic releases, but traders are awaiting the October Consumer Inflation Expectations report, following a 4.9% reading in September [1].
Looking ahead, market participants are focused on ongoing Middle East hostilities and upcoming US economic data, including jobless claims and the University of Michigan Consumer Sentiment report [1]. Technical analysis shows AUD/USD trading at 0.6961, maintaining a bearish near-term bias as it remains below key moving averages, with the Relative Strength Index at 34.8, just above oversold territory, suggesting persistent but easing downside pressure [1].
CONCLUSION
The Australian Dollar weakened amid hawkish Fed signals and rising geopolitical tensions, particularly in the Middle East, which supported the US Dollar and oil prices. Market participants remain cautious, monitoring upcoming US economic data and developments in the region for further direction.