AUD/USD accelerates to near 0.6820 ahead of Reserve Bank of Australia policy

• AUD/USD has advanced firmly to near 0.6820 as the focus has shifted to RBA monetary policy.
• The RBA is expected to hike its interest rates by 25 bps consecutively for the third time.
• Solid US NFP failed to infuse fresh blood into the US Dollar.

The AUD/USD pair has witnessed a sharp recovery in the Tokyo session after a corrective move below 0.6780. The Aussie asset has accelerated to near 0.6820 and is expected to extend its gains toward the previous week’s high around 0.6845 amid the risk appetite profile.

Meanwhile, the US Dollar Index (DXY) has turned sideways marginally above Friday’s low around 104.40 as positive market sentiment has trimmed safe-haven’s appeal. The upbeat United States Nonfarm Payrolls (NFP) has failed to fetch ground for the US Dollar. In November, the US economy added fresh 263K jobs vs. the prior release of 200K. Also, the labor cost index has improved to 5.1% on an annual basis.

A solid labor market along with escalating wages indicates a further increment in inflationary pressures as households carries higher funds for disposal. This may accelerate demand for perishable and durable goods, which could keep price growth active.

On the antipodean front, investors are awaiting an interest rate decision by the Reserve Bank of Australia (RBA), which will be announced on Tuesday. Economists at UOB Group cited that “We are penciling in another 25 basis points (bps) hike at the final monetary policy meeting of the year on 6 Dec, which will take the OCR to 3.10%.

It is worth noting that this could be the third consecutive 25 bps rate hike by RBA Governor Philip Lowe. The monthly Consumer Price Index (CPI) dropped to 6.9% in October against the prior release of 7.3%. Still, the inflation rate is significantly far from the targeted rate of 2%, which compels for the continuation of policy tightening.

Apart from that, investors will keep an eye on Caixin Service PMI data. The economic data is seen marginally higher at 48.8 vs. the former release of 48.4.