Australian Dollar Strengthens as Markets Await RBA Decision

The AUD/USD surged higher on Monday, rising by 0.70% to 0.6600 amid expectations of a hawkish Reserve Bank of Australia (RBA) policy decision and uncertainty surrounding the US presidential election. The US Dollar weakened on speculation of a Kamala Harris victory and the Federal Reserve’s dovish rate cut bets.

Economic Data and Market Sentiment

US Nonfarm Payrolls disappointed, missing estimates and casting doubt on the Fed’s aggressive rate cut path. Recently, the AUD/USD has declined due to a US Dollar recovery and concerns over China’s economy. However, the RBA is expected to maintain a hawkish stance, supporting the AUD in the long term. Market expectations for an RBA rate cut are low, while investors are confident of interest rate cuts by the Federal Reserve later this week and again in December.

Political Influence on Currency Movements

The US Dollar fell on Monday as polls suggested a tight race between Vice President Kamala Harris and former President Donald Trump in Iowa. A Trump victory could boost the USD due to expected protectionist policies and higher inflation. Conversely, a Harris win would likely continue current policies, benefiting riskier currencies. The Fed is expected to cut interest rates by 25 basis points on Thursday, influencing the USD.

RBA’s Stance and Economic Outlook

On the other hand, the RBA is expected to hold interest rates steady. The RBA’s outlook on economic activity and inflation will also be closely watched as Australian reports recently showed mixed signs but with inflation still above the bank’s target.

AUD/USD Technical Outlook

Bullish signs are emerging for the AUD/USD pair, suggesting it might have hit bottom. The Relative Strength Index (RSI) is in the negative area at 41, but the RSI slope is rising sharply, indicating that buying pressure is picking up. Meanwhile, the Moving Average Convergence Divergence (MACD) is flat and red, suggesting that selling pressure is weakening.

The AUD/USD pair has resumed its upward trajectory, driven by a recovery in technical indicators from oversold levels. This recovery suggests that the recent sell-off may have been excessive and that buyers are re-entering the market. The pair had previously hit its lowest point since August, indicating that the downtrend may be losing momentum.