AUD Strengthens Toward 0.7000, Supported by Weak US Sentiment

The Australian Dollar (AUD) strengthened against the US Dollar (USD) during early Asian trading on Monday (Oct 12), with the AUD/USD pair hovering around 0.6985 and edging closer to the psychological 0.7000 level. The AUD's rise followed data showing a decline in US consumer sentiment, while markets await the Reserve Bank of Australia (RBA) meeting minutes due for release on Tuesday.

The University of Michigan Consumer Sentiment Index fell to 46.3 in October from 48.1 in September, missing market expectations of 47.6. This weakening sentiment put pressure on the US Dollar; however, a rise in US consumer inflation expectations kept the market considering the possibility of monetary policy tightening by the Federal Reserve.

Markets currently price in only a 17.7% probability of a Fed rate hike at the October meeting, whereas the likelihood of a hike in December stands at approximately 84.1%. This implies that while expectations for an immediate rate hike remain low, investors still anticipate potential further tightening toward the end of the year.

From Australia, expectations for an RBA rate hike in November have declined after the latest inflation data came in line with forecasts. Markets now estimate only a 20% chance of an RBA rate hike at the early November meeting. Former RBA board member Ian Harper noted that further rate hikes this year remain possible but are not necessarily the base-case scenario.