China Keeps Interest Rates Steady; Australian Dollar Under Pressure! What’s Next for the RBA?

The Australian dollar weakened against the U.S. dollar in trading on Tuesday (October 20, 2026), following two consecutive days of gains. The AUD/USD currency pair hovered around the 0.6970 level during the Asian session, following a decision by China’s central bank, the People's Bank of China (PBOC), to keep its benchmark interest rates unchanged. The PBOC maintained the one-year Loan Prime Rate (LPR) at 3.00% and the five-year LPR at 3.50%. This decision hindered the Australian dollar’s ​​momentum, as the market remains focused on the outlook for China’s economic growth.

The PBOC’s decision is significant because China is one of Australia’s largest trading partners, particularly in commodities such as iron ore and coal. The unchanged lending rates suggest that the Chinese central bank has not yet provided additional stimulus through LPR cuts. This has left investors cautious regarding the outlook for Chinese demand for commodities. Should China’s economic growth slow, demand for Australian exports could decline, thereby exerting downward pressure on the Australian dollar.

Nevertheless, the decline in the Australian dollar has been somewhat tempered by comments from a Reserve Bank of Australia (RBA) official, who signaled support for a tight monetary policy. RBA Assistant Governor Christopher Kent questioned whether Australia’s current 4.6% interest rate is sufficiently high to curb inflation. He suggested that an increase in the neutral interest rate could mean that current policy is not as restrictive as previously estimated. These remarks leave the door open for further interest rate hikes, should inflationary pressures in Australia fail to show a sufficient decline.

Meanwhile, the policy direction of the U.S. Federal Reserve (the Fed) is also influencing the movement of the AUD/USD pair. Federal Reserve official Kevin Warsh recently expressed an optimistic view regarding the resilience of the U.S. economy, though he offered no clarity on the timing of the next interest rate hike. The market anticipates that the Fed will hold rates steady at its October meeting, while the probability of a rate increase in December is estimated at 82.8%. These expectations could bolster the U.S. dollar and limit any gains for the Australian dollar.

Looking ahead, the trajectory of the AUD/USD pair will depend on economic developments in China, the Reserve Bank of Australia’s (RBA) interest rate policy, and decisions from the Fed. Investors are also awaiting a speech this week by RBA Deputy Governor Andrew Hauser, which may provide clues regarding the future direction of Australia’s monetary policy. From a technical perspective, the 0.7000 level serves as a key psychological threshold. Should the AUD/USD manage to break back above this level and sustain its position, there could be room for a recovery. Conversely, if the U.S. dollar continues to strengthen and sentiment toward the Chinese economy weakens, the Australian dollar risks coming under renewed pressure. Market attention is now focused on whether the RBA’s firm stance will be sufficient to lift the Australian dollar, given the uncertainties surrounding China’s economy and the Federal Reserve’s policy path.