The Australian Dollar (AUD) steadied on Tuesday, trimming earlier losses against the US Dollar (USD) as traders digested new diplomatic developments in the Middle East and a persistently hawkish outlook from the Reserve Bank of Australia (RBA) [1]. At the time of reporting, AUD/USD was trading around 0.7107, down 0.15% on the day after hitting an intraday low of 0.7092 [1]. Iran has offered to reopen the Strait of Hormuz within seven days if the US lifts its blockade of Iranian ports and eases military pressure, a move that has contributed to lower oil prices, with West Texas Intermediate (WTI) trading near $89.50, down more than 5% for the week [1]. The US Dollar Index (DXY) retreated from an intraday high of 100.67 to around 100.45, its highest since July 30, as these geopolitical developments unfolded [1].
Despite the softer US Dollar, expectations of further Federal Reserve (Fed) rate hikes continue to provide support for the Greenback. The Fed raised rates by 25 basis points last week to a range of 3.75%-4.00% and signaled that additional tightening may be necessary to bring inflation back toward its 2% target [1]. Fed officials, including Chairman Kevin Warsh, Chicago Fed President Austan Goolsbee, and St. Louis Fed President Alberto Musalem, have all delivered hawkish remarks, emphasizing persistent inflation risks and the need for further policy tightening [1][2]. ING’s Francesco Pesole notes that near-term risks for the Dollar remain skewed to the upside, with DXY potentially reaching 101.0 before month-end, supported by hawkish Fedspeak even as oil prices decline [2].
On the economic data front, the latest ADP NER Pulse showed US private employers added an average of 20,000 jobs per week over the four weeks ending September 5, up from 16,750 previously, indicating a modest rebound in hiring [1][4]. The Greenback traded slightly on the defensive following this data, with DXY hovering around the 100.40 region [4].
The Australian Dollar continues to find support from the RBA’s hawkish stance. The central bank has raised rates three times this year, bringing the cash rate to 4.35%, with core inflation remaining above its 2%-3% target range [1]. RBA Governor Michele Bullock highlighted that “upside inflation risks may be materialising,” though she clarified that no policy shift was being signaled and that decisions remain with the board [1]. Markets are pricing in a 95% chance of another 25-basis-point hike to 4.60% at the September 29 meeting [1]. Standard Chartered’s Nicholas Chia has revised his forecast, now expecting the RBA to hike to 4.60% at the upcoming meeting, citing recent RBA messaging and resilient economic momentum, and has delayed the projected start of RBA rate cuts to Q3-2027 from Q1-2027 [3]. Further hikes in Q4 are not ruled out, contingent on upside surprises in inflation and continued economic resilience [3].
Overall, the interplay between hawkish central bank rhetoric in both the US and Australia, evolving Middle East diplomacy, and shifting commodity prices is creating a complex environment for the AUD/USD pair. While the US Dollar remains supported by Fed expectations, the Australian Dollar is underpinned by a hawkish RBA and the prospect of a widening interest-rate gap if the RBA hikes again next week [1][2][3].
CONCLUSION
The Australian Dollar is holding firm against the US Dollar, supported by a hawkish RBA outlook and expectations of further rate hikes, even as the Fed maintains a similarly hawkish stance. Geopolitical developments and softer oil prices are influencing both currencies, but the market is closely watching upcoming central bank meetings and inflation data for further direction. The interest-rate differential and central bank guidance remain key drivers for AUD/USD in the near term.