Australian Dollar retains losses as PBOC rates remain unchanged.

October 20, 2026

AUD/USD Movement and Economic Insights

The AUD/USD dipped slightly after two consecutive days of gains, trading around 0.6970 in Asian trading on Tuesday. The Australian Dollar (AUD) has been under pressure following the recent interest rate announcement from the People’s Bank of China (PBOC), which kept its benchmark Loan Prime Rates unchanged—3.00% for the one-year LPR and 3.50% for the five-year LPR.

That said, there’s a chance for the Australian Dollar to gain some support, thanks to comments from a senior central bank official. Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent raised questions about whether current interest rates are sufficiently restrictive. He pointed out signs that neutral interest rates are on the rise, both domestically and globally.

Kent’s remarks suggest that if neutral rates are indeed higher, the existing cash rate of 4.6% might be applying less downward pressure on demand and inflation than previously expected. This keeps the possibility of future rate hikes in the mix. Investors are now eager to hear from RBA Deputy Governor Andrew Hauser later this week for more insights into the monetary policy future.

On another front, Federal Reserve Chair Kevin Warsh affirmed a positive outlook on the US economy last week, though he didn’t indicate when or if any further rate increases might happen. The CME FedWatch tool reflects that traders are predicting the Federal Reserve will pause on interest rates during the October meeting, with an 82.8% chance of a rate hike in December.

Dollar Weakens as Markets Reassess Fed Policies

Scotiabank analysts note that the USD has softened slightly as markets reassess expectations regarding near-term Fed tightening, with recent communications from the Fed causing investors to rethink the likelihood of immediate policy changes.

Insights on the Australian Dollar

Interest rates set by the Reserve Bank of Australia (RBA) are crucial for the Australian Dollar (AUD). As a resource-rich country, the price of Iron Ore also plays a significant role. Additionally, the health of the Chinese economy—Australia’s largest trading partner—along with domestic inflation, economic growth, and trade balance, will affect the AUD. Market sentiment, swinging between risk-on and risk-off, similarly influences the AUD.
The RBA impacts the AUD by determining the interbank lending rates, which influence overall interest rates in the economy. The primary goal remains to maintain inflation between 2-3% by adjusting rates as needed. Higher interest rates relative to other central banks typically support the AUD.
China’s economic stability is vital for the AUD, as a robust Chinese market increases demand for Australian exports, thereby enhancing the value of the AUD. Conversely, a slowdown in China negatively impacts the AUD.
Iron Ore, being Australia’s largest export, significantly contributes to the AUD’s value. With a reported $118 billion in exports mainly directed to China, rising Iron Ore prices generally bolster the AUD due to increased currency demand.
The Trade Balance—representing the difference between exports and imports—also sways the AUD’s value. A surplus in exports compared to imports boosts demand for the AUD, while a deficit has the opposite effect.