Australian Dollar Slips as RBA Signals Potential Pause

Key Moments

RBA Decision Undermines Australian Dollar

AUD/USD remained under pressure during Asian trading on Friday, hovering near 0.6910 after falling more than 1% in the prior session. The Australian Dollar weakened against the US Dollar as market expectations for additional rate hikes were tempered by more cautious forward guidance from the Reserve Bank of Australia (RBA).

On November 3, the RBA raised its cash rate by 25 basis points to 4.85%. However, the decision was not unanimous: the vote split 6-3, with three policymakers preferring to keep rates unchanged. At the same time, the central bank removed explicit references to the likelihood of further tightening, which investors interpreted as increasing the chances of a pause in December.

Despite that softer tone, policymakers stressed that price pressures remain problematic. RBA Deputy Governor Andrew Hauser said in remarks at the Australian National University in Canberra on Thursday that inflation remains very elevated, reinforcing concerns about persistent pricing pressures even as the bank moderates its guidance.

Market Sentiment and Incoming US Data Support the Dollar

The US Dollar found support from a cautious market tone as participants focused on the upcoming US Nonfarm Payrolls report. That data release is expected to be a key input for shaping expectations around the Federal Reserve’s policy decision in December.

However, several countervailing forces limited the extent of Dollar gains. Recent declines in US bond yields weighed on the currency, while ongoing optimism about potential diplomatic progress with Iran reduced safe-haven demand for the greenback. In addition, the Democrats’ victory increased expectations of political gridlock in Washington, which could restrict government spending and potentially slow economic activity, further acting as a drag on the Dollar’s upside.

Strategists See Broader Backdrop Still Favoring USD

Analysts at OCBC maintained a constructive stance on the US Dollar, arguing that macroeconomic conditions continue to lean in its favor. They highlighted that, in their view, resilient US growth, persistent inflation, and expectations that the Federal Reserve will continue tightening policy should keep the USD underpinned, even if short-term swings become more pronounced.

The strategists noted that “with US growth still solid, inflation sticky and the Fed on track for further tightening, we retain our view that the USD should remain supported, albeit with greater two-way risks.” They also emphasized the political dimension, stating that a Democratic Senate “should also strengthen the institutional guardrails around Fed independence by making it harder for the administration to confirm additional allies to the Federal Reserve Board,” and argued that this reinforces their view that policy continuity at the Fed will help support the currency even as uncertainty around the outlook persists.

Key Policy and Market Levels