AUD/USD Strengthens, Supported by RBA Rate Hike Expectations

The AUD/USD pair remained near its monthly high during the Asian session on Friday (October 23), following a rebound from below the 0.7000 level. Although its movement has been somewhat limited, the Australian dollar is still on track for a solid weekly gain, bolstered by fundamental support stemming from expectations regarding the Reserve Bank of Australia’s (RBA) monetary policy.

Positive sentiment toward the AUD has been reinforced by hawkish remarks from several RBA officials. Assistant Governor Christopher Kent noted indications that the neutral interest rate is rising, both in Australia and globally. Meanwhile, Deputy Governor Andrew Hauser warned that the third-quarter "trimmed mean" inflation figure could come in higher than anticipated, keeping the possibility of an interest rate hike on the table ahead of the RBA’s meeting on November 3.

Additional support has come from China, Australia’s primary trading partner. China’s economy grew by 4.5% year-on-year in the third quarter—an improvement from the 4.3% growth recorded in the previous quarter and a performance that exceeded forecasts. This outcome has bolstered the Australian dollar, as the economic outlook for China directly influences demand for commodities and Australia’s trade performance.

Nevertheless, the upside for the AUD/USD pair has been tempered by a recovery in the US dollar from a three-week low. The market currently assigns an approximately 80% probability to a Federal Reserve interest rate hike in December. Furthermore, inflationary concerns—driven by rising oil prices and escalating tensions in the Middle East—have fueled demand for the US dollar as a safe-haven asset.

Market participants are now awaiting clearer signals regarding the Federal Reserve’s policy direction. Focus is primarily on the outcome of the two-day FOMC meeting concluding next week, followed by the release of US third-quarter GDP data and the PCE Price Index—both of which could significantly influence interest rate expectations and the trajectory of the US dollar. Newsmaker Analysis: The AUD/USD pair continues to find support from the RBA’s hawkish stance and improving economic growth in China; however, the scope for further gains remains limited as long as the US dollar is bolstered by interest rate hike expectations and geopolitical risks. The pair’s next direction will largely depend on the Federal Reserve’s upcoming decision and US economic data due next week. (srh)

Source: Newsmaker.id