Australian Dollar recovers some ground after RBA’s dovish hike

• AUD/USD recoups some post-RBA losses but stays in negative territory.
• The RBA raises rates to 4.85%, while Bullock signals a possible pause to assess incoming data.
• Traders monitor Oil price swings, US midterm elections and upcoming US employment figures.

AUD/USD claws back some of the losses recorded immediately after the Reserve Bank of Australia’s (RBA) monetary policy announcement earlier on Tuesday, which pushed the pair to a two-week low of 0.6961. At the time of writing, AUD/USD trades around 0.6990, down 0.10% on the day.

The RBA raised its cash rate by 25 basis points (bps) to 4.85%, as expected, taking rates to their highest level since 2008. This marks its fifth hike this year as policymakers respond to surging inflation fuelled by the global Oil shock triggered by the war in the Middle East.

The Australian Dollar fell despite the hike as traders focused on the split vote and softer policy guidance. Six board members backed the increase, while three preferred to hold rates steady. The RBA also dropped its explicit reference to further hikes if needed.

RBA Governor Michele Bullock struck a cautious tone, saying it was “probably best to pause and assess incoming data.” Bullock also said she was “uncertain about the next rate move” and stressed that monetary policy “requires time to take effect.”

However, the central bank maintained that “the Board will continue to do what it considers necessary to bring inflation sustainably back to target.” It also warned that inflation is “not expected to reach the top of the 2-3 per cent target range until late 2027, around three quarters later than previously forecast.”

Meanwhile, volatile Oil prices keep the US Dollar (USD) choppy on Tuesday. Oil prices have edged lower following unconfirmed reports that Washington and Tehran have made concessions over Iran’s nuclear programme and frozen funds, raising hopes of diplomatic progress.

The US Dollar Index (DXY), which tracks the Greenback against six major currencies, hovers around 101.80, little changed on the day, with attention also on the US midterm elections.

Attention also turns to US employment data, starting with JOLTS Job Openings on Tuesday and ending with Nonfarm Payrolls (NFP) on Friday. The figures could shape expectations for a December Fed rate hike and provide fresh direction for AUD/USD.