Australian Dollar edges lower after RBA decides to maintain status quo

• The Australian Dollar attracts some sellers following the RBA's widely expected rate decision.
• Bets for more Fed rate cuts act as a headwind for the USD and lend some support to AUD/USD.
• The divergent RBA-Fed outlooks favor the Aussie bulls amid the underlying bullish sentiment.

The Australian Dollar (AUD) drifts lower after the Reserve Bank of Australia (RBA) decided to leave interest rates unchanged and moves away from its highest level since September 18, touched against its American counterpart the previous day. The downside, however, remains cushioned in the wake of the RBA's hawkish outlook, saying that risks to inflation have tilted to the upside. This, along with a modest US Dollar (USD) downtick, assists the AUD/USD pair to hold steady above the 0.6600 mark through the Asian session on Tuesday.

The AUD bulls, however, remain on the sidelines and opt to wait for more cues about the RBA's next policy move amid rising bets for interest rate hikes next year. Hence, the focus now shifts to the post-meeting press conference, where comments from RBA Governor Michele Bullock will play a key role in influencing the AUD price dynamics. In the meantime, dovish US Federal Reserve (Fed) expectations keep a lid on the recent USD recovery from its lowest level since late October and should act as a tailwind for the AUD/USD pair.

Australian Dollar bulls opt to wait for post-meeting RBA press conference

• The Reserve Bank of Australia decided to leave the Official Cash Rate (OCR) unchanged at 3.6% following the conclusion of the December monetary policy meeting this Tuesday. In the accompanying policy statement, the RBA said that the board will be attentive to the data and the evolving assessment of the outlook and risks to guide its decisions.
• There's been a notable repricing in the markets over the past two weeks that the Reserve Bank of Australia is done cutting rates for now, as price pressures are proving to be persistent. In fact, inflation remains above the RBA’s 2% to 3% annual target and raises questions about just how much headroom the central bank has to ease policy.
• Moreover, RBA Governor Michele Bullock said last week that if inflation proves to be persistent, it would have implications for future monetary policy. Some analysts even believe that the RBA might be done with easing and could even consider tightening heading into 2026 if domestic conditions stay firm and inflation doesn't cool.
• Hence, the market focus will remain glued to RBA Governor Bullock's comments during the post-meeting press conference, which will be scrutinized closely for the forward guidance about potential interest rate hikes.
• However, there is a chance that the RBA strikes a less hawkish tone after last week’s lacklustre GDP report, which showed that the economic growth slowed to 0.4% during the July-September period, from 0.6% in the second quarter. This could undermine the Australian Dollar, though the downside for the AUD/USD pair seems limited.
• The US Commerce Department reported last Friday that the Personal Consumption Expenditures Price Index rose 2.8% on a yearly basis in September, matching estimates. The core gauge rose 2.8% compared to 2.9% in August, which, along with signs of a cooling US labor market, reaffirmed dovish Federal Reserve expectations.
• According to the CME Group's FedWatch Tool, traders are pricing in a nearly 90% chance that the US central bank will lower borrowing costs by 25 basis points at the end of a two-day policy meeting on Wednesday. This should cap a modest US Dollar recovery from its lowest level since late October and support the AUD/USD pair.
• Apart from the key central bank event risks, traders will take cues from a duo of US labor market reports on Tuesday – the ADP Weekly Employment Change and JOLTS Job Openings. The focus will then shift to the FOMC decision on Wednesday and the Australian monthly employment details, due for release on Thursday.

AUD/USD corrective slide below 0.6600 is likely to be bought into

The AUD/USD pair finds some support near the 0.6615-0.6620 resistance breakpoint. Moreover, oscillators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone, validating the near-term constructive outlook for the currency pair. Some follow-through buying beyond the 0.6645-0.6650 region, or a multi-month top touched on Monday, will set the stage for a move towards challenging the year-to-date peak, levels just above the 0.6700 mark, touched in September.

On the flip side, weakness below the 0.6600 round figure could be seen as a buying opportunity near the 0.6560-0.6555 region. This is followed by the 100-day Simple Moving Average (SMA), around the 0.6540-0.6535 area, below which the AUD/USD pair could weaken to the 0.6500 psychological mark en route to the 0.6480 horizontal zone. Failure to defend the said support levels would negate the positive outlook and shift the near-term bias in favor of bearish traders, exposing a multi-month low, around the 0.6420 region, touched in November.