The Australian Dollar is this week's worst-performing major currency, down about 1.4% against the US Dollar, even with a September RBA rate hike essentially fully priced in. AUD/USD is now testing 0.7006 support as traders lighten long positions ahead of Tuesday's meeting, focused less on the hike itself than on the vote split and guidance that follow it.
Aussie weakness goes beyond broad Dollar strength
Every major currency has weakened against the Dollar this week, but AUD has fallen further than its peers, down around 1.4%, underperforming even NZD. With a 25bp RBA hike to 4.60% essentially fully priced, the market has little upside left to capture from the headline decision. Instead, it still faces uncertainty over the vote, statement tone, and guidance on what comes next.
That makes the move best read as position lightening ahead of asymmetric event risk, not evidence traders expect a divided or dovish board. Investors can still believe the RBA hikes on Tuesday and reduce long-AUD exposure anyway, because a clean, unanimous decision with firm guidance may merely validate what's already priced, while a split vote or softer language could force a much larger repricing.
Rate path beyond September stays uncertain
Further out the curve, that uncertainty is visible directly. While September is priced at essentially 100%, the implied probability of another move drops sharply to around 40.8% for November and 26.4% for December, before only partially recovering by February. The sell-side is split too: Commonwealth Bank expects a unanimous decision with hawkish language, while Westpac expects a split vote, despite both forecasting the same 4.60% cash rate.
RBA Monetary Policy Board member Iain Ross added to the picture this week, saying, according to ActionForex, there was "no evidence of the emergence of a wage-price spiral" and that recent data suggested such an outcome was unlikely. That weakens the case for treating wages as an accelerating inflation engine, but above-target underlying inflation and excess-demand concerns still support the hawkish case.
Domestic data cut both ways
August employment rebounded by 39.5k, but all of the net gain came from part-time work. Full-time employment fell by around 6k, and unemployment rose from 4.5% to 4.6%. The Q2 Wage Price Index held at 3.2% year-on-year, down from 3.4% a year earlier, against headline CPI of 3.5% and trimmed-mean inflation of 3.6%.
HSBC's Paul Bloxham has gone further, putting the probability of a technical recession near 50% if both September and November hikes materialize, well above the roughly 20% consensus.
Technical picture: AUD/USD presses 0.7006
AUD/USD has extended its decline from 0.7237 and broken below its daily 55 EMA, as well as former 0.7074 support, and is now pressing the 0.7006 level, the 61.8% retracement of the rise from 0.6864 to 0.7237. A sustained break below 0.7006 would expose 0.6864, with the larger 0.6756 area becoming the next major medium-term support. On the upside, reclaiming 0.7074 would suggest near-term stabilization.
The RBA will decide one day before the August CPI release, so policymakers won't have the freshest inflation reading when they vote. A unanimous hike with clearly hawkish guidance could stabilize AUD, while a split vote or softer tightening language would be the more obvious downside surprise for the pair.
Source: ActionForex
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