Australian Dollar weakens ahead of RBA hike and Chinese holidays

The Australian Dollar is experiencing significant weakness, testing the 0.7000 level against the US Dollar. This underperformance comes as markets prepare for an almost certain interest rate hike by the Reserve Bank of Australia (RBA) to 4.60%.

While the hike itself is largely priced in, investors are reducing exposure due to uncertainty regarding the RBA's vote composition and future guidance. The market is currently pricing a low probability for subsequent rate hikes in November and December, suggesting expectations of a pause in tightening.

Simultaneously, Chinese markets are closed for the Mid-Autumn Festival, providing a preview of the upcoming week-long National Day holiday. The absence of Chinese onshore markets is contributing to thinner trading volumes in the Asian session, affecting commodities like iron ore and gold, and leaving the Australian Dollar without its typical Chinese economic anchor.