Australian Dollar gains support as RBA delivers 25-basis-point rate hike
AUD/USD gains ground after recovering daily losses, trading around 0.7020 during the Asian hours on Tuesday.
The Australian Dollar (AUD) experienced a boost as the Reserve Bank of Australia (RBA) made a 25-basis-point (bps) increase in the Official Cash Rate (OCR) to 4.60% from 4.35% during their September monetary policy meeting. This decision was in line with market expectations. The AUD/USD pair initially weakened as the US Dollar gained strength, which was driven by rising oil prices due to ongoing uncertainty surrounding US-Iran negotiations.
High energy costs have heightened market expectations for further rate hikes by the Federal Reserve to control inflation. Consequently, US Treasury yields reached record highs, with both the 10- and 30-year yields surpassing 5%. The market has responded by anticipating a 70% chance of another rate increase in October, as indicated by the CME FedWatch Tool.
As investors now focus on upcoming US economic indicators, critical data releases, such as the Personal Consumption Expenditures (PCE) inflation report on Wednesday and the Nonfarm Payrolls report on Friday, will provide further insights into the Federal Reserve's policy direction. Strategic analysts at Rabobank noted that speculative positioning in the US Dollar remains relatively stable, with net long positions largely unchanged, suggesting that while market participation has increased, overall conviction on the Dollar's trend remains uncertain.
The RBA's interest rate decision, made at the end of its eight scheduled meetings per year, has historically favored the Australian Dollar (AUD) when the central bank adopts a hawkish stance on inflation. Conversely, a dovish view or rate changes by the RBA would be perceived as bearish for the AUD.
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