Australian Dollar’s corrective pullback from monthly high stalls amid RBA hawkishness and USD weakness

A fresh monthly high gives way to a modest AUD/USD retreat, with little follow-through selling.
Risk-sensitive Aussie weakens as Middle East concerns dampen investor sentiment.
A three-week USD low, driven by lower bond yields, and a hawkish RBA contain the downside.

AUD/USD holds above the psychological 0.7000 level. Selling remains limited through the first half of the European session, despite Thursday's retreat from a fresh monthly high. The decline ends a four-day run of gains and interrupts the pair's recent solid recovery from below 0.6900, its lowest level since early July.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Concerns that Middle East tensions could escalate further are dampening investor sentiment and triggering some selling of the risk-sensitive Australian Dollar (AUD). Further AUD/USD losses are contained, however, by recent hawkish remarks from Reserve Bank of Australia (RBA) officials and continued selling pressure on the US Dollar (USD).

On Monday, RBA Assistant Governor Christopher Kent pointed to reasonable indications of rising neutral interest rates in Australia and globally. Earlier today, RBA Deputy Governor Andrew Hauser also cautioned that Q3 trimmed-mean inflation could exceed expectations. Those remarks sustain expectations of a rate increase ahead of the November 3 policy meeting.

China's stronger-than-expected Q3 GDP reading provides additional support for the Aussie. By contrast, the USD has extended its retreat from an 18-month high to a fresh three-week low. Recent comments from US Federal Reserve (Fed) officials indicated no urgency to increase interest rates at the October 27–28 meeting.

A further decline in US bond yields from multi-year highs is also restraining USD buyers and lending AUD/USD some support. Still, those selling the USD may hold back from aggressive positions until the Fed's policy outlook becomes clearer. Attention therefore centres on the outcome of the two-day FOMC meeting that begins on Tuesday.

7-Day Australian Dollar Performance

Over the last 7 days, the Australian Dollar (AUD) recorded its strongest performance against the US Dollar. The table below sets out its percentage changes against the major currencies listed.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.72%	-1.59%	-0.77%	-1.54%	-0.61%	-1.64%	-1.83%
EUR	0.72%		-0.91%	-0.07%	-0.91%	0.10%	-0.92%	-1.16%
GBP	1.59%	0.91%		0.82%	0.02%	1.00%	-0.10%	-0.22%
JPY	0.77%	0.07%	-0.82%		-0.71%	0.19%	-0.86%	-1.02%
CAD	1.54%	0.91%	-0.02%	0.71%		0.90%	-0.15%	-0.23%
AUD	0.61%	-0.10%	-1.00%	-0.19%	-0.90%		-1.02%	-1.18%
NZD	1.64%	0.92%	0.10%	0.86%	0.15%	1.02%		-0.21%
CHF	1.83%	1.16%	0.22%	1.02%	0.23%	1.18%	0.21%

Percentage movements between major currencies are displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, starting with the Australian Dollar on the left and reading across to the US Dollar gives the percentage change for AUD (base)/USD (quote) in the corresponding cell.