AUD/USD's steep slide from Friday's peak, its highest in more than a month, has paused and the market now faces a crossroad as the RBA meeting and U.S. midterm elections loom.
The RBA is widely expected to hold the cash rate steady, leaving traders to scrutinize the statement. Recent editions have been somewhat upbeat and traders expect similar rhetoric again but downside risks could be highlighted.
Slowing Chinese growth, lingering U.S.-China trade issues and slowing Australian housing are likely to be addressed.
If the RBA gives greater weight to those risks and their impact on Australia's economy, expectations for RBA hikes could vanish, hitting the aussie.
However, the U.S. election could give AUD/USD bulls some hope.
A shift to the Democrats in the House of Representatives, which is widely expected, should curtail future spending or tax cut plans by the Republicans.
If so that might dampen U.S. growth prospects which could reduce market expectations for Fed rate hikes.
The greenback would likely suffer as dollar bulls exit. AUD/USD could then extend November's gains, targeting September and August monthly highs.
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