AUD/USD Retreats but Recovers on Weaker US Dollar

Following the Reserve Bank of Australia's (RBA) meeting, the AUD/USD experienced a rise in Tuesday's session. The pair tested levels above 0.6700, supported by a broad-based weakness in the US dollar. However, it failed to sustain its position above that level.

During the meeting, the RBA chose to maintain its interest rate at 4.10%. As anticipated, the central bank adopted a hawkish tone, indicating the possibility of future rate hikes. The RBA decided to pause and assess the impact of the rate increases implemented thus far, while also removing the reference to inflation risks being tilted to the upside from its statement. The decision was widely expected, as many analysts had already predicted a rate hold. Market participants still anticipate further rate hikes from the RBA in the future.

Following the announcement, the Australian dollar (AUD) initially retraced its gains, causing the AUD/USD to dip below 0.6650. However, it quickly rebounded and recovered its position, primarily due to the weakening US dollar. In contrast, the AUD/NZD pair closed at its lowest level in a month, around 1.0800.

The RBA meeting had a notable impact on the Australian dollar's performance and its overall outlook. The forthcoming economic data from Australia, particularly related to inflation, will play a crucial role in shaping the trajectory of the AUD. On Wednesday, the Ai Group Australian Industry Index is scheduled to be released, along with the final reading of the Judo Bank Australia Services PMI, which is expected to remain at 50.7.

Regarding the US dollar, it experienced a loss of momentum on a relatively quiet Tuesday, which facilitated the rebound in AUD/USD. On Wednesday, market participants will shift their attention to the release of the Federal Reserve's meeting minutes. Subsequently, on Thursday, the ADP Nonfarm Employment report is due, followed by the highly anticipated Nonfarm Payrolls report on Friday.