AUD Outperforms Peers on Hawkish RBA Bets

The Australian dollar showed relative strength among major currencies on Monday, gaining against most counterparts except the US dollar, as market bets on a hawkish policy path from the Reserve Bank of Australia intensified. During the European trading session, AUD/USD edged lower from around 0.7120 earlier, last trading at 0.71288, still holding near recent relative highs.

**Hawkish Bets Support AUD**

Trader expectations that the RBA will maintain a tightening bias are the main driver behind the Aussie outperforming its peers. In contrast, market pricing for the pace of further Federal Reserve rate hikes is also shifting, with CME FedWatch data showing traders currently pricing in a 53.1% probability of a Fed rate hike in October. The diverging policy expectations between the two central banks give the Australian dollar a relative edge in cross trades.

**External Risk Events in Focus**

Investors are also closely watching the potential outcome of high-level US-China meetings. If the talks send positive signals, improved risk appetite could further benefit risk-sensitive currencies like the Aussie; conversely, if results fall short of expectations, the Australian dollar could face near-term pullback pressure. Market reports indicate that as a resource-exporting currency, the Aussie is particularly sensitive to shifts in global trade sentiment.

**Policy Signals Ahead**

In the near term, the Australian dollar's trajectory will remain driven by both RBA policy expectations and US dollar fluctuations. Absent a clear directional breakout, AUD/USD may continue to consolidate within the current range, with markets awaiting more policy clues to confirm the next move.