AUD/USD Price Forecast: RBA’s dovish hike puts Australian Dollar under pressure

• The RBA’s dovish rate rise puts heavy pressure on the Australian Dollar, sending AUD/USD sharply lower.
• The RBA’s guidance indicated a high threshold for any further increase in interest rates.
• The result of US midterm elections is expected to have a negative short-term impact on the US Dollar.

A 0.45% fall leaves the Australian Dollar (AUD) near 0.6965 against the US Dollar (USD) in Tuesday’s European session, with the currency lagging its major peers.

Earlier in the day, the Reserve Bank of Australia (RBA) increased the Official Cash Rate (OCR) by 25 basis points (bps) to 4.85%. Its apparent reluctance to raise borrowing costs further is putting the Australian currency under considerable pressure.

Aussie falls as dovish RBA guidance and weaker outlook overshadow rate rise

For ING analysts, the policy decision was less forceful than investors had anticipated. They observe that the Aussie Dollar “came under pressure this morning after the RBA hiked rates as expected to 4.85%, but delivered some dovish signals.” In particular, they point out that “the 6-3 split suggests lower conviction around today’s decision than in markets, which had almost fully priced in a hike (21bp),” highlighting the gap between the RBA’s stance and market expectations.

Changes to both the statement and the forecasts also drew ING’s attention: “the statement dropped its reference to potential further hikes for the first time since June,” while “the economic outlook was revised sharply to the downside, with a focus on falling house prices weighing on consumers and upside risks to unemployment.” Governor Michele Bullock subsequently “reinforced the RBA’s wait-and-see approach, stressing that monetary tightening still has to feed through to the economy.” These remarks came at the press conference.

Although further tightening remains possible, ING says that “she left the door open to further tightening, but the bar is clearly higher now,” and describes the RBA as apparently “happy to assess the impact of previous hikes before acting again.” The bank concludes: “This is in line with our forecast of no further RBA hikes,”

Thursday’s release of September Trade Balance figures will provide the next major catalyst for the Australian Dollar.

Ahead of the United States (US) midterm elections in the late North American session, trading in the US Dollar remains cautious.

On the potential currency implications, ING strategists state that “we don’t expect today’s US midterm results to cause structural shifts in FX, but the Dollar may face some short-term pressure should the Democrats secure both the House (widely expected) and the Senate (close call).”

As their baseline assessment, the strategists argue that “markets fully price in a Republican loss of the House, but only partially a Democratic clean sweep,” adding that “a blue sweep can put some pressure on the Dollar.”

The risks extend to equities and government decision-making, with ING cautioning that “fears of tougher regulation could weigh on AI stocks (we’ve recently seen how that can hit the greenback), while markets could price in greater risks of decision-making gridlock around issues such as government funding and the debt ceiling.” Nevertheless, the strategists qualify that warning: “we doubt that’s enough to trigger a structural directional shift in the Dollar. The greenback continues to respond predominantly to the Fed story, which shouldn’t face an immediate and direct impact from the midterm result. We expect a split Congress (R-S, D-H) to have a neutral or slightly positive USD impact.”

AUD/USD retains a bearish near-term technical bias

At 0.6967 on the daily chart, AUD/USD remains beneath its 20-day Exponential Moving Average (EMA) of 0.7008, maintaining a bearish near-term outlook. With the Relative Strength Index (RSI) around 42, downward momentum appears modest rather than indicative of outright oversold conditions.

The former break area around 0.6904 provides the first support, followed by the structural trend-line base near 0.6834. Resistance initially lies at the 20-day EMA of 0.7008. Only a sustained break above that level would ease the bearish pressure and pave the way for a more constructive recovery.

(The technical analysis of this story was written with the help of an AI tool. Know more.)