AUD Softens as Hawkish Fed Signals Trump RBA Rate Decision

The Australian Dollar (AUD) has softened to near 0.7000 against the US Dollar (USD) as hawkish signals from the Federal Reserve (Fed) continue to strengthen the greenback.

Rising US Treasury yields and growing bets on further Fed interest rate hikes have fueled speculation about additional rate increases, with Cleveland Fed President Beth Hammack warning that persistently high inflation risks conditioning the American public to accept elevated prices as the norm.

The Reserve Bank of Australia (RBA) will be in focus later this week, with traders anticipating a 25 basis points (bps) rate hike to combat sticky inflation. Governor Michele Bullock's press conference after the rate decision may provide further cues on whether the RBA is prepared to deliver back-to-back hikes in November or prefers to wait and see.

Brown Brothers Harriman's Elias Haddad notes that Australia's latest labour force data delivered a mixed signal, with the unemployment rate unexpectedly rising 0.1ppt to 4.6%, above consensus and the RBA's year-end projection of 4.5%. However, he argues that the increase in the jobless rate largely reflects a higher participation rate, suggesting underlying conditions remain firm.