The AUD/USD currency pair has been experiencing significant volatility, with a decline of 0.68% last week and a five-week losing streak. This is the largest monthly drop since September 2022, with a decrease of 4.81%.
The anticipation of a Republican victory in the upcoming US elections has been driving this trend, as traders increase their long positions on the US dollar. A Republican win is expected to result in higher tariffs, inflation, and deficits, strengthening the US dollar at the expense of the Australian dollar.
Recent developments in US election polling have shifted market sentiment, with a decrease in the likelihood of a Republican sweep and an increase in the probability of a Democratic win with a split Congress. This has exerted downward pressure on the US dollar and led to a rebound in AUD/USD.
The implications of the US elections on AUD/USD are significant, with a Democratic victory potentially pushing the pair higher and a Republican sweep leading to a further decline.
The Reserve Bank of Australia (RBA) is set to hold its board meeting on November 5, where it is expected to maintain the cash rate. Recent inflation data from Australia showed a decrease, indicating a potential shift toward an interest rate-cutting cycle. However, the strength of the Australian labor market suggests that any rate cuts may be deferred.
From a technical perspective, AUD/USD has been on a downward trajectory but has recently rebounded and is challenging resistance levels. The interplay between political developments in the US and economic indicators from Australia will be crucial in determining the future trajectory of the currency pair.