Aussie soars to 3-month high, RBA expected to hike

• AUD/USD climbs after soft US nonfarm payrolls
• RBA rate decision a 50/50 toss-up

The Australian dollar has edged lower on Monday, after huge gains on Friday. In the North American session, AUD/USD is trading at 0.6499, down 0.21%.

On Friday, the Aussie posted spectacular gains, rising 1.22% and hitting its highest level since August 10th. The US dollar retreated against the majors on Friday, suffering sharp losses after a softer-than-expected nonfarm payrolls report.

Nonfarm payrolls fell to 150,000 in October, down from a downwardly revised 297,000 in September and shy of the consensus estimate of 170,000. The reading wasn’t a massive miss of the forecast, but investors jumped all over the soft reading as expectations jumped that the Fed could be done with tightening. The Fed rate odds of a hike in December have fallen to 10%, compared to 24% just a week ago, according to the CME Fed Watch Tool. We can expect to hear the markets talk more and more about a rate cut sometime in 2024.

The RBA meets on Tuesday and we’ve seen a remarkable swing in the RBA rate odds. Just a few weeks ago, the probability of a pause was close to 100%, but that has changed dramatically. According to the ASX RBA rate tracker, the odds of a hike are now 50/50, making it a live meeting that could see significant volatility from the Australian dollar.

RBA policy makers have a tough call to make after holding rates four straight times. Inflation has been falling slowly but the current level of 5.4% is much higher than the 2% target. Inflation expectations remain high and the RBA wants to see these expectations remain anchored; otherwise, the battle with inflation will become even more difficult.

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AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6523. Above, there is resistance at 0.6582
• 0.6449 and 0.6379 are providing support

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