The Australian dollar held just below $0.70, hovering near multi-month lows, as the US dollar extended its rally on the back of surging US Treasury yields. The Aussie is on track for a fourth consecutive weekly decline, even after the Reserve Bank of Australia lifted the cash rate to a 15-year high of 4.6% in September. Investors see limited room for additional tightening while policymakers gauge the impact of earlier rate increases.
Signs of a sharp housing market slowdown and a steady rise in unemployment have further dampened expectations of another RBA hike. Futures markets now imply only a 22% probability of an October move and a 38% chance of an increase in December.
In contrast, the US dollar remained broadly firm, supported by resilient economic data, elevated Treasury yields and heightened geopolitical tensions in the Middle East. The rise in US yields has compressed the yield advantage of Australian bonds to its narrowest level in a year, eroding a key source of support for the Aussie. The currency did receive some marginal, indirect support from euro weakness, driven by mounting concerns over French sovereign debt.
