Australian Dollar Climbs as US Dollar Weakens and Fed Hold Expected

The Australian Dollar (AUD) edged higher against the US Dollar (USD) on Tuesday, gaining 0.13% to trade around 0.6980. This rise was supported by a modest weakening of the US Dollar, as US Treasury yields pulled back slightly from recent highs. The benchmark 10-year US Treasury yield, which had reached a peak of 5.349% on Monday, its highest since 2002, fell to around 5.29%. Despite this decline, yields remain elevated due to ongoing inflation risks, government debt concerns, and expectations that interest rates will stay high for longer.

The US Dollar Index (DXY), which measures the Greenback's strength against a basket of major currencies, retreated to around 101.87 after hitting a fresh year-to-date high of 102.53 on Monday. The reduction in Treasury yields temporarily diminished the appeal of the US Dollar, providing a boost to the AUD/USD pair. Market expectations for a Federal Reserve (Fed) rate hold in October have strengthened, with a 78% chance of no change at the October 27-28 meeting, according to the CME FedWatch tool. However, inflationary pressures and the Fed's commitment to lowering inflation keep the possibility of a December rate hike on the table.

On the Australian side, expectations for further monetary tightening by the Reserve Bank of Australia (RBA) remain limited. Money markets see only a 20% chance of an RBA rate hike in November, which reduces monetary policy support for the Australian Dollar. As a result, the AUD/USD pair's movement is largely driven by changes in the US Dollar and US Treasury yields. Technical analysis shows that AUD/USD is trading at 0.6981, with near-term resistance at 0.7020 and support at 0.6965. The pair's momentum shows modest recovery, but it remains capped below key moving averages.