Australian dollar softens as markets brace for RBA decision
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Daily Currency Update
The Australian dollar (AUD) began the week on a softer footing, slipping against the US dollar (USD) after a four-day winning streak and prompting a cautious tone among currency traders. By Monday’s Asian session, AUD/USD was trading near US$0.6623, retreating as the Greenback found modest support and market participants reduced risk exposure ahead of a key central-bank event. The pullback reflects a familiar pattern in the lead-up to major monetary policy announcements, with investors opting for consolidation rather than extending directional bets.All eyes now turn to the Reserve Bank of Australia (RBA), which will deliver its final interest rate decision of the year on Tuesday. Market consensus strongly favours another hold at 3.60%, continuing the pause seen in both September and November. Those decisions followed three rate cuts earlier in the year, a sequence that had initially encouraged expectations of a longer easing cycle. However, a mix of resilient domestic demand and lingering inflationary pressures has tempered those assumptions, pushing traders to pay closer attention to the central bank’s messaging rather than the policy outcome itself.
Because a steady rate decision is fully priced in, the critical market driver will be the RBA’s forward guidance. Policymakers face the delicate task of acknowledging progress on inflation without prematurely signalling a dovish tilt that could reignite price pressures or spur unwelcome currency volatility. Analysts note that Governor Michele Bullock has consistently emphasised the need for vigilance, reinforcing that the inflation fight is not yet complete.
While the RBA is not expected to hike in the near-term, speculation has grown that the central bank may adopt a more cautious tone around the outlook for 2025 and into 2026. If domestic economic conditions remain firm, particularly consumption, wages, and services inflation, the central bank may have little room to entertain rate cuts. Some market economists argue that a hawkish-leaning statement, even without an explicit tightening bias, could help anchor inflation expectations and support the AUD in the medium term. However, global factors add another layer of complexity.
The USD has stabilised as markets reassess the Federal Reserve’s trajectory heading into next year. Recent US data have delivered mixed signals, tempering bets on aggressive rate cuts and offering intermittent support to the Greenback. For the AUD/USD pair, this means that even a mildly hawkish RBA message could struggle to generate outsized gains if US yields remain resilient.
In the immediate term, traders are likely to maintain a cautious stance until Tuesday’s announcement clarifies the central bank’s assessment of inflation risks, labour-market conditions, and the broader economic outlook. With volatility poised to rise, the AUD’s next meaningful move will hinge less on the rate decision itself and more on whether the RBA signals confidence, concern, or a shift in strategic direction for the year ahead.
Key Movers
The US Dollar Index (DXY) remained firmly supported on Monday, holding above the 99.00 mark during the American session as traders positioned cautiously ahead of a pivotal week for US monetary policy and economic data. With the Federal Reserve set to announce its final interest rate decision of the year and publish an updated Summary of Economic Projections (SEP), investors showed little appetite for large directional bets, keeping the Greenback broadly stable against major peers.The Fed’s decision on Wednesday dominates the macro landscape, with markets widely expecting no change in the benchmark interest rate. Still, the true market catalyst lies in the SEP and Chair Jerome Powell’s accompanying commentary, both of which will offer crucial insight into how policymakers view the inflation trajectory, labour-market cooling, and the timing of potential rate cuts in 2025.
Recent data has shown moderation in price pressures, but not enough to compel the Fed to adopt a decisively dovish tone. As a result, traders expect Powell to maintain an emphasis on data dependency, preserving flexibility while avoiding premature signals of easing. In the meantime, the USD is drawing support from its safe-haven qualities as traders brace for a heavy data calendar.
Labour-market figures will feature prominently throughout the week, beginning Tuesday with the release of the ADP Employment Change four-week average alongside JOLTS Job Openings for September and October. These indicators will help shape expectations ahead of Friday’s non-farm payrolls report, often the month’s most market-moving release.
While the labour market has shown signs of cooling, it remains resilient enough to complicate the Fed’s path toward potential rate loosening. The ADP data will be scrutinised for trends that may signal whether private-sector hiring continues to decelerate. Meanwhile, JOLTS figures will provide a window into labour demand dynamics, particularly the balance between job openings and available workers. A continued decline in job openings would support the narrative that labour-market pressures are easing, a critical factor for the Fed as it aims to ensure inflation returns sustainably to its 2% target. However, any upside surprise could reinforce a cautious stance and offer fresh support to the USD.
For currency markets, the combination of uncertainty and anticipation typically bolsters the Greenback, especially when global risk sentiment wavers. Monday’s price action reflected this dynamic: equities traded mixed, Treasury yields were relatively steady, and traders gravitated toward defensive positioning. Should the SEP reveal fewer projected rate cuts for 2025 than markets currently anticipate, the DXY could extend its gains in the days ahead.
As the week progresses, the interplay between Fed communication and incoming labour data will shape the USD’s next major move. For now, stability prevails, with the DXY holding firm as market participants await clarity from Washington and the labour market.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▼
- AUD/EUR: 0.5600 - 0.5800 ▼
- GBP/AUD: 2.0050 - 2.0250 ▲
- AUD/NZD: 1.1350 - 1.1550 ▼
- AUD/CAD: 0.9050 - 0.9250 ▲