AUD/USD Outlook Q4: Hawkish RBA and Fed Hikes to Weigh on Aussie

The Australian dollar's (AUD) quarterly outlook for Q4 is influenced by both domestic and global factors. On one hand, the Reserve Bank of Australia (RBA) has maintained a hawkish stance, with markets expecting at least one more interest rate hike to 4.60%.

This move is largely driven by persistent inflationary pressures, as underling inflation remains elevated at 3.6% year-on-year. However, the RBA's decision to pause after this hike may be influenced by rising unemployment, which has already reached 4.6% in August.

The US Federal Reserve (Fed) is also expected to continue its tightening cycle, with markets pricing in a 76% chance of another rate hike in October and around a 59% probability for two further hikes in Q4. The Fed's median year-end policy rate projection stands at 4.1%, suggesting a need for additional monetary policy tightening.

AUD/USD's performance is closely tied to the broader market trends, with its correlation with the US dollar index increasing in recent times. As the US dollar index appears poised to reach 104 and form a bullish reversal pattern, AUD/USD may face increased downward pressure.