Australian Dollar gains support as RBA delivers 25-basis-point rate hike

• The Reserve Bank of Australia raised its cash rate by 25 bps to 4.60%, matching market expectations.
• US Dollar gains ground as elevated oil prices exacerbate inflation concerns, favoring further Fed tightening.
• CME FedWatch Tool suggests 70% odds of an October Fed rate increase.

AUD/USD gains ground after recovering daily losses, trading around 0.7020 during the Asian hours on Tuesday. The pair gains support as the Australian Dollar (AUD) receives support after the Reserve Bank of Australia (RBA) decided to raise the Official Cash Rate (OCR) by 25 basis points (bps) to 4.60% from 4.35% at its September monetary policy meeting. The decision aligned with market expectations.

The AUD/USD pair depreciated as the US Dollar gained momentum, driven by elevated oil prices stemming from ongoing uncertainty surrounding US-Iran negotiations. Persistent pressure on energy costs has heightened market expectations that the Federal Reserve will need to tighten monetary policy further to keep inflation in check.

Escalating inflation concerns and the prospect of additional rate hikes pushed US Treasury yields to fresh multi-year highs, with both the 10- and 30-year yields surging above 5%. Money markets are responding accordingly; following the Fed’s first rate increase in three years earlier this month, the CME FedWatch Tool currently reflects roughly a 70% probability of another rate hike in October.

Market participants are now focusing on upcoming US economic indicators for further guidance on the central bank's policy trajectory. Critical data releases scheduled for later this week include Wednesday’s Personal Consumption Expenditures (PCE) inflation report and Friday’s Nonfarm Payrolls report.

USD positioning steady as Rabobank highlights balanced build-up in longs and shorts

Strategists at Rabobank observe that speculative positioning in the Dollar has shown little net change, with “USD net longs largely unchanged as both long and short positions increased by 2,000 positions, respectively.” This suggests that while market participation on both sides of the trade has picked up, overall conviction on the broader Dollar direction remains broadly stable.