AUD/USD surges above 0.6600 as RBA maintains hawkish interest rate guidance

Finance

AUD/USD surges above 0.6600 as RBA maintains hawkish interest rate guidance

• AUD/USD jumps strongly to near 0.6620 as the RBA favors hawkish guidance on interest rates due to persistent inflation risks.
• Investors await the US presidential elections and the Feds policy meeting.
• Traders expect a tough competition between Kamala Harris and Donald Trump.

The AUD/USD pair revisits more than a week high of 0.6620 in European trading hours on Tuesday. The Aussie pair gains as the Australian Dollar (AUD) strengthens after the Reserve Bank of Australia (RBA) delivers a hawkish interest rate guidance, while leaving its Official Cash Rate (OCR) unchanged at 4.35%, which was widely anticipated.

RBA Governor Michelle Bullock emphasized the need to maintain a restrictive interest rate stance amid persistence of upside risks to inflationary pressures. She supported to keep interest rates steady until the economy turns down more than expected.

Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range,“ the RBA said in a statement. The central bank added that underlying inflation still remained ”too high.

Meanwhile, the outlook of the Aussie pair is expected to be guided by United States (US) presidential elections for which traders are uncertain about the likely winner between Republican candidate Donald Trump and Democratic rival Kamala Harris. Trumps victory is expected to be unfavorable for the Australian Dollar as he vowed to raise tariffs by upto 60% on China if he wins. This will have a significant impact on Australian exports as it is the leading trading partner of China.

This week, investors will also pay close attention to the Federal Reserves (Fed) policy meeting, which is scheduled for Thursday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 4.50%-4.75%. This would be the second interest rate cut by the Fed in a row.