The Australian Dollar (AUD) traded largely unchanged against the US Dollar (USD) around 0.7020 on Monday, supported by expectations that the Reserve Bank of Australia (RBA) will raise its Official Cash Rate (OCR) by 25 basis points to 4.60% at its meeting on Tuesday, marking the highest level in 15 years and the fourth hike this year [1][3]. Markets have already priced in this increase, so investor focus is shifting to the RBA's guidance on future rate moves [1]. Against the New Zealand Dollar (NZD), the AUD remained flat near 1.2390, consolidating after a rally to 13-year highs last week, with technical indicators suggesting bullish momentum may be fading ahead of the RBA decision [3].
The RBA faces a challenging environment, as inflation risks persist while economic growth shows signs of weakening, according to September’s Purchasing Managers' Index (PMI) figures [3]. Meanwhile, the Reserve Bank of New Zealand (RBNZ) has a more moderate benchmark rate at 2.75% and recently delivered a dovish message, limiting Kiwi appreciation [3]. Technical analysis for AUD/USD shows the pair holding a bearish near-term bias below key moving averages, with resistance at 0.7045 and support at 0.7004 [1]. For AUD/NZD, bearish divergence in the Relative Strength Index and a flat MACD signal a lack of directional conviction, with support at 1.2370 and resistance at 1.2491 [3].
In the broader context, elevated US Treasury yields continue to support the USD, with the Federal Reserve (Fed) having raised its policy rate by 25 basis points in September to 3.75%-4.00% and signaling potential further tightening to achieve its 2% inflation target [1][2]. Market expectations indicate a 70% chance of another Fed rate hike in October, according to CME FedWatch [1][2]. The US-Canada yield gap has widened, with the US 2-year Treasury yield at 4.90% versus Canada's 3.37%, and the 10-year gap at 5.21% versus 3.96%, contributing to USD/CAD trading at 1.4165, its highest since July 13 [2].
Strategists at Brown Brothers Harriman note that the USD could continue to benefit from widening US-G6 interest rate differentials and strong foreign demand for US securities, though tightening by other central banks may limit the extent of USD strength [2]. The Bank of Canada (BoC) kept its policy rate at 2.25%, citing limited spillover from higher energy prices into inflation but acknowledging increased upside risks and uncertainty from new tariffs [2].
Looking ahead, investors are awaiting the RBA's guidance post-rate hike, Canada's July GDP data on Tuesday, and key US economic releases including the PCE inflation report, ISM Manufacturing PMI, and Nonfarm Payrolls later in the week [2].
CONCLUSION
The Australian Dollar remains stable as markets anticipate a widely expected RBA rate hike, with attention shifting to future policy guidance amid persistent inflation risks and slowing growth. Elevated US yields and diverging global monetary policies continue to support the US Dollar, impacting cross-currency dynamics. Market participants are closely watching upcoming central bank decisions and economic data for further direction.