AUD/USD Consolidates Near 9-Month Highs as RBA-Fed Policy Divergence Widens

The Australian Dollar continues to find support against the US Dollar this week, with the currency pair maintaining its position near the strongest levels observed since mid-September. Converting approximately 90 AUD to USD reveals the pair’s resilience around the 0.6640 mark as market participants brace for pivotal central bank announcements and economic releases.

Policy Divergence Fuels AUD/USD Strength

A stark contrast in monetary policy trajectories between the Reserve Bank of Australia and the United States Federal Reserve continues to provide fundamental support to the AUD/USD pair. While the RBA faces persistent inflation concerns—with Governor Michele Bullock recently noting that price pressures have not yet returned to the central bank’s 2-3% target band—the institution is widely anticipated to maintain its current stance at Tuesday’s meeting.

Simultaneously, the Australian economy demonstrated robust growth momentum, expanding at its quickest pace in two years, coupled with a resilient labour market. These conditions have sparked market chatter regarding a potential RBA rate hike in the coming year, standing in stark contrast to the evolving US monetary outlook.

Fed Rate Cut Expectations Weigh on USD

The divergence intensifies when examining Federal Reserve expectations. Recent US economic indicators signal a gradual softening of economic activity, prompting several Fed policymakers to suggest that an interest rate reduction in December is increasingly probable. The CME FedWatch Tool currently reflects traders’ assessment of roughly 90% odds for a 25-basis-point rate cut during Wednesday’s decision.

This dovish US outlook contrasts sharply with the tighter policy stance suggested for Australia, pushing USD lower and providing tailwinds for the AUD/USD exchange rate. Market participants remain cautious, however, preferring to await the Fed Chair’s post-meeting commentary and updated economic projections before establishing fresh positions.

China Trade Data Could Inject Volatility

Looking ahead, China’s Trade Balance figures scheduled for Monday will command attention from currency traders. Given the Chinese economy’s significant influence on global financial conditions, movements in this data release could catalyse fluctuations in the Australian Dollar and, by extension, the AUD/USD pair.

The technical setup suggests that bullish sentiment remains entrenched, with pullbacks likely to attract buying interest rather than trigger capitulation among long holders.