The AUD/USD pair is trading around 0.7035, up 0.20% on Friday (October 23). The Australian dollar maintains a slight edge over the US dollar as the market anticipates that the Reserve Bank of Australia (RBA) may raise interest rates again, given persistent inflationary pressures.
Expectations of monetary tightening by the RBA serve as a key pillar for the AUD, particularly as the market perceives a divergence in monetary policy paths between Australia and the United States. Market participants are currently assessing the likelihood of another RBA rate hike and its potential impact on the attractiveness of the Australian dollar.
On the US front, S&P Global data indicates that private sector activity remains robust. The manufacturing PMI for October rose to 56.0—a 53-month high—surpassing the expected 55.6. Meanwhile, the services PMI dipped to 57.9 from 58.8, and the Composite PMI stood at 57.6. All these figures remain above the 50-point threshold, signaling continued economic expansion.
Investor attention is now shifting toward the Federal Reserve’s decision next Wednesday. The Fed is expected to hold interest rates within the 3.75%–4.00% range. However, the outlook for December remains a focal point, with the market pricing in an approximately 80% chance of a rate hike, driven largely by inflation risks stemming from oil prices.
In the absence of updated economic projections, investors will closely monitor the policy statement and comments from Fed Chair Kevin Warsh during the press conference. These remarks could offer clues regarding the trajectory of US interest rates and shape the movement of the US dollar against major currencies, including the Australian dollar.
Newsmaker Analysis: The AUD/USD pair retains a positive bias, supported by expectations of RBA rate hikes; however, the AUD’s gains could be limited if US data remains strong and the Fed maintains a hawkish stance. The divergence in policy direction between the RBA and the Fed is a key factor, while inflation risks stemming from oil prices may continue to provide support for the US dollar.