• The Australian Dollar retreats on Tuesday, giving back some of Monday's gains as the US Dollar regains strength.
• Hawkish comments from Federal Reserve officials reinforce expectations of another interest rate hike in December.
• China's narrowing trade surplus adds pressure to the Aussie, while investors await crucial US inflation data.

AUD/USD trades around 0.6905 on Tuesday, down 0.31% on the day at the time of writing, as the Australian Dollar (AUD) loses some ground against the US Dollar (USD) following Monday's strong rebound. The Aussie remains under pressure amid rising expectations of further monetary tightening by the Federal Reserve (Fed), while disappointing Chinese trade data weigh on sentiment.

The latest figures from China, Australia's largest trading partner, showed that the Trade Surplus narrowed to $105.28 billion in October from $133.53 billion in September, missing market expectations of $125.8 billion.

Despite the narrowing surplus, Chinese exports and imports continued to expand on an annual basis, suggesting that external trade activity remains resilient. Nevertheless, the weaker-than-expected headline figure provides limited support for the Australian Dollar.

Meanwhile, the US Dollar benefits from increasingly hawkish expectations surrounding the Fed's monetary policy outlook. According to the CME FedWatch tool, markets now assign an approximately 99% chance to a 25-basis-point interest rate hike in December, up from 84% a day earlier.

Fed Governor Christopher Waller reinforced these expectations on Tuesday, stating that “We need to raise rates to put downward pressure on inflation.” He also acknowledged that monetary policy has been less restrictive than previously anticipated.

Investors now turn their attention to Tuesday's US Consumer Price Index (CPI) report. Headline inflation is expected to increase 0.3% MoM in October, compared with 0.6% in September, while Core CPI is forecast to rise 0.2%, down from 0.3% previously.

Stronger-than-expected inflation could reinforce expectations of additional Fed tightening and provide further support to the Greenback, potentially extending AUD/USD's decline. Conversely, softer figures could weaken the US Dollar and help the Aussie recover some of its recent losses.

AUD/USD technical analysis

In the daily chart, AUD/USD trades at 0.6906, maintaining a bearish near-term tone as spot holds decisively beneath the 100-day simple moving average (SMA) at 0.7028 and the 200-day SMA at 0.7056. The pair’s inability to reclaim these medium-term averages suggests rallies remain capped for now, while the Relative Strength Index (14) around 40 hints at subdued momentum consistent with a shallow recovery rather than a sustained uptrend.

On the downside, failure to maintain a foothold above 0.6894 could revive selling pressure, exposing the recent low around 0.6855. A break below this level would bring the March low at 0.6834 back into focus. A decisive move beneath this support could confirm a deeper bearish extension.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.