On Monday (November 3), during the European session, the Australian dollar traded in a narrow range around 0.6550 against the US dollar, rising slightly by about 0.10% on the day. Market attention was focused on the Reserve Bank of Australia's monetary policy decision to be announced on Tuesday, while the US dollar index continued its strong performance, reaching a three-month high of 99.90, putting pressure on the Australian dollar below a key resistance level.

Diverging expectations for Federal Reserve policy exacerbate market uncertainty.

Last week, the Federal Reserve cut interest rates by 25 basis points as expected, but Chairman Powell's hawkish remarks stirred up the market. He emphasized that setting monetary policy faces many challenges against the backdrop of rising inflation and a stagnant labor market, and explicitly warned the market not to have overly high expectations for further easing this year. This statement caused the probability of a rate cut in December to drop sharply from 91% before the meeting to 67%, thus supporting the dollar, with the index rising by more than 1% in a single week.

However, the policy divergence has not subsided. Federal Reserve Governor Waller recently stated that continued easing is necessary to support the cooling labor market, a view that contrasts sharply with Powell's stance. This internal disagreement within the decision-making body is enough to throw the money market into chaos, with traders struggling to find direction amidst conflicting signals. Currently, the Fed faces both rising inflationary pressures and signs of a weakening job market, significantly increasing the ambiguity of its policy path.

This week's lack of economic data has exacerbated market uncertainty. With the non-farm payrolls report and job openings data absent, and only the ADP private sector employment data due on Wednesday, the market is forced to rely solely on this as a guide for the Federal Reserve's next move. In this data-scarce environment, fluctuations in any economic indicator are likely to be amplified, and market volatility is expected to remain high.

Tightening liquidity becomes an invisible driving force for the US dollar

The market should now focus more on the underlying driver: liquidity. As the US Treasury replenishes its coffers, signs of tightening are emerging in the money market. The theme of "finding a dollar" has returned, with overnight repo transactions surging to $50 billion last Friday. Banks are forced to pay the upper limit of the Federal Reserve's target range to maintain smooth cash flow. This liquidity squeeze is quietly supporting the dollar, and even when risk appetite rose last week, risk currencies struggled to find a foothold.

This liquidity pressure may also be affecting broader market performance. The US government shutdown has entered its 34th day, with Congress deadlocked over a Republican-backed appropriations bill. Trump has again urged Republican senators to end the shutdown by repealing obstruction rules, an unprecedented move that continues to face resistance from Republican leadership. Concerns about the potential economic damage from a prolonged shutdown have further fueled risk aversion.

The Reserve Bank of Australia's decision will be key to the short-term fate of the Australian dollar.

Regarding the Australian dollar, the market is holding its breath awaiting the Reserve Bank of Australia's policy statement on Tuesday. Economists widely expect the central bank to keep the official cash rate unchanged at 3.6%, as last week's third-quarter consumer price index (CPI) showed that inflationary pressures accelerated more than expected on both the consumer and wholesale sides. Data from the Australian Bureau of Statistics showed that the producer price index rose 1% month-on-month in the July-September period, higher than the expected 0.8% and the previous value of 0.7%. During the same period, consumer inflation rose 1.3% month-on-month, also exceeding the expected 1.1% and the previous value of 0.7%.

This Monday's U.S. economic calendar includes manufacturing activity data. The S&P Global Manufacturing Purchasing Managers' Index is expected to confirm an acceleration in sector activity to 52.2 in October from 52.0 in September, while the ISM Manufacturing Purchasing Managers' Index is expected to show further contraction, falling to 49.2 from 49.1 last month, although the price sub-index shows inflationary pressures rising to 62.6 from 61.9.

Technical aspects:

Observing the 30-minute candlestick chart, the Australian dollar is currently trading within a range of 0.6540 to 0.6560 against the US dollar. Structurally, the price has formed the initial stages of a double top pattern at 0.6559 and 0.6562, which constitute a short-term resistance zone. Meanwhile, the horizontal support line at 0.6540 serves as a crucial defense line for the bulls.



From the candlestick pattern, recent price fluctuations have narrowed, with multiple attempts to break through the upper and lower limits of the trading range failing, indicating a stalemate between bulls and bears in this area. This consolidation often foreshadows a potential directional breakout, but the direction of the breakout still needs further confirmation.

From a comprehensive technical perspective, the Australian dollar is expected to maintain a range-bound trading pattern against the US dollar in the short term. The resistance zone above 0.6560 and the support line below 0.6540 together define the current trading range. A breakout above 0.6560 with significant volume could open up upside potential towards 0.6580 and even 0.6600. Conversely, a break below the 0.6540 support could lead to a retest of the 0.6532 low, potentially challenging the psychological level of 0.6500.