Australian Dollar holds steady as RBA rate hike expectations balance elevated US yields

• The Australian Dollar remains supported by expectations that the Australian central bank will raise interest rates on Tuesday.
• Markets expect a 25-basis-point hike, which would lift the benchmark interest rate to 4.60%.
• The US Dollar benefits from elevated bond yields as markets anticipate further monetary tightening in the United States.

AUD/USD trades around 0.7020 on Monday at the time of writing, virtually unchanged on the day. The Australian Dollar (AUD) remains supported by expectations of further monetary tightening from the Reserve Bank of Australia (RBA) at its meeting on Tuesday, while the US Dollar (USD) benefits from elevated US Treasury yields.

The RBA is expected to raise its Official Cash Rate (OCR) by 25 basis points (bps), from 4.35% to 4.60%, which would take Australia's benchmark interest rate to its highest level in 15 years. Such a move would mark the Australian central bank's fourth rate hike this year.

The decision itself, however, could have a limited impact on the Australian Dollar, as markets are already largely pricing in a 25-basis-point increase. Investors are therefore likely to focus primarily on the RBA's guidance regarding the future path of interest rates.

On the US side, the US Dollar retains some support as Treasury yields remain elevated. The Federal Reserve (Fed) raised its policy rate by 25 basis points in September to a range of 3.75%-4.00% and signaled that further tightening could be needed to bring inflation back toward its 2% target.

Expectations of another Fed rate hike are therefore limiting gains in AUD/USD despite the more restrictive outlook for the RBA. Markets see around a 70% chance of another US rate increase in October, according to the CME FedWatch tool.

On the geopolitical front, the US and Iran are expected to resume indirect talks on Monday or Tuesday, according to Reuters, with Qatar acting as mediator. Discussions are expected to focus on an amended version of the seven-day proposal presented by Tehran on the sidelines of the United Nations General Assembly. Any developments in the negotiations could also influence broader risk sentiment across financial markets.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7023, holding a bearish near-term bias as it remains below the 100-hour simple moving average (SMA) at 0.7047 and the 200-hour SMA at 0.7082. The pair is attempting to stabilize just above minor intraday lows, while the Relative Strength Index (RSI) at 52 suggests modest, rather than strong, buying interest that is not yet sufficient to challenge the overhead moving average cap.

On the topside, initial resistance is seen at the horizontal barrier at 0.7045, followed closely by the 100-hour SMA at 0.7047, forming a nearby cluster, with further upside hurdles at 0.7075, the 200-hour SMA at 0.7082, and then 0.7105 and 0.7140. On the downside, immediate support emerges at 0.7004, ahead of a lower structural floor at 0.6984, where a deeper slide would expose broader weakness in the hourly trend.

(The technical analysis of this story was written with the help of an AI tool. Know more.)