AUD/USD Price Forecast: RBA’s dovish hike puts Australian Dollar under pressure

• AUD/USD falls sharply, with the Australian Dollar under heavy pressure from the RBA’s dovish rate rise.
• The RBA’s message pointed to a demanding threshold for any further increase in interest rates.
• The results of US midterm elections are expected to have a negative short-term impact on the US Dollar.

The Australian Dollar (AUD) is down 0.45% on Tuesday. During European trading, it is near 0.6965 against the US Dollar (USD), lagging its major currency peers.

Heavy selling pressure follows the Reserve Bank of Australia’s (RBA) apparent reluctance to lift borrowing costs further. Earlier in the day, it raised the Official Cash Rate (OCR) by 25 basis points (bps) to 4.85%.

4.85% RBA rate: Aussie retreats on dovish signals and weaker outlook

A less assertive policy stance than investors had expected weighed on the currency, according to ING analysts. The Aussie Dollar “came under pressure this morning after the RBA hiked rates as expected to 4.85%, but delivered some dovish signals.” In their assessment, “the 6-3 split suggests lower conviction around today’s decision than in markets, which had almost fully priced in a hike (21bp)”.

Changes to the statement and forecasts also stood out to ING: “the statement dropped its reference to potential further hikes for the first time since June,” while “the economic outlook was revised sharply to the downside, with a focus on falling house prices weighing on consumers and upside risks to unemployment.” Governor Michele Bullock’s press conference message “reinforced the RBA’s wait-and-see approach, stressing that monetary tightening still has to feed through to the economy.”

On the prospect of another rate rise, ING observes that “she left the door open to further tightening, but the bar is clearly higher now”. The RBA appears “happy to assess the impact of previous hikes before acting again.” ING added: “This is in line with our forecast of no further RBA hikes,”

Thursday’s release of September Trade Balance figures will provide the next key catalyst for the Australian Dollar.

For the US Dollar, trading remains cautious before the United States (US) midterm elections in the late North American session.

Setting out their election assessment, ING strategists write that “we don’t expect today’s US midterm results to cause structural shifts in FX, but the Dollar may face some short-term pressure should the Democrats secure both the House (widely expected) and the Senate (close call).”

The strategists’ base case is that “markets fully price in a Republican loss of the House, but only partially a Democratic clean sweep”. They add that “a blue sweep can put some pressure on the Dollar.”

Regulation and political deadlock are potential risks, with ING warning that “fears of tougher regulation could weigh on AI stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling.” Their broader currency assessment nevertheless remains unchanged: “we doubt that’s enough to trigger a structural directional shift in the Dollar. The greenback continues to respond predominantly to the Fed story, which shouldn’t face an immediate and direct impact from the midterm result. We expect a split Congress (R-S, D-H) to have a neutral or slightly positive USD impact.”

0.7008 EMA caps AUD/USD: Technical Analysis

At 0.6967 on the daily chart, AUD/USD retains a bearish short-term bias below its 20-day Exponential Moving Average (EMA) of 0.7008. A Relative Strength Index (RSI) reading near 42 points to moderate downward momentum, rather than outright oversold conditions.

The former breakout area around 0.6904 provides initial support, followed by the structural trend-line base near 0.6834. Recovery attempts first face resistance at the 20-day EMA of 0.7008. Only a sustained break above that level would relieve bearish pressure and pave the way for a more constructive rebound.

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