AUD/USD seeks cushion around 0.6500 as hawkish RBA bets soar

• AUD/USD is eyeing a cushion at around 0.6500 ahead of RBA policy.
• A fifth consecutive 50 bps rate announcement is expected by the RBA.
• The DXY is displaying a vulnerable performance after a downbeat release of the US ISM PMI data.

The AUD/USD pair is picking bids around the psychological support of 0.6500 after a mild correction from 0.6520. The major has turned sideways after a sheer upside from the critical support of 0.6400. The asset is expected to display a lackluster performance in the remaining Tokyo session as investors are awaiting the announcement of the interest rate decision by the Reserve Bank of Australia (RBA).

As per the projections, RBA Governor Philip Lowe will announce a rate hike of 50 basis points (bps) for the fifth consecutive time. An occurrence of the same will drive the Official Cash Rate (OCR) to 2.85%. If that occurs, RBA policymakers will be forced to dictate a less ‘hawkish’ guidance. The RBA sees its OCR to top around 3.85%. The current pace will meet the desired rate by the end of 2022, therefore, the central bank will trim its hawkish tone if it move ahead with half-a-percent rate hike.

Well, one could not rule out the alternative of a 25 bps rate hike by the RBA as the option was cited in the discussion list, as drafted in RBA monetary policy minutes. Therefore, investors should be expected the unexpected at the October meeting.

Meanwhile, the US dollar index (DXY) is on the tenterhooks as expectations for a decline towards the round-level support of 111.00 are accelerating. A downbeat reading of US ISM Manufacturing PMI has weakened the DXY. The economic PMI data declined to 50.9 vs. the expectations of 52.2 and the prior release of 52.8. Trimmed retail demand has slashed the extent of manufacturing activities, which is warranting a slowdown ahead.