[MARKET ANALYSIS] DXY trades tentatively into midterms; AUD lags post-RBA, which avoided further hawkish guidance

• G10s are mostly slightly firmer against the USD, which is trading tentatively within a thin range this morning. The CHF is a touch firmer, following a hotter-than-expected CPI report, whilst the AUD lags following the RBA’s decision to hike rates by 25bps (as expected), though did not signal further action.
• DXY is essentially flat and trades within a thin 101.62 to 101.87 range. Action which comes as Americans head to polling stations for the midterms, where a Democratic Sweep is likely, according to major prediction market odds. Kalshi assigns a 76% chance of a Dem Senate, and 94% chance of a Dem House. This outcome would undoubtedly be USD-negative in the short-term given the implications to passing policy, slower growth and the increased chance of a government shutdown. Perhaps a more favourable outcome for the USD would be a Dem House and a GOP Senate.
• The long-term impact on US policy is not likely to materially change following the midterms, says Morgan Stanley. However, a fragile Democratic majority could spur some USD-pressure, where analysts favour long-JPY and long-CHF.
• CHF is amongst the outperformers this morning, following on from a hotter-than-expected CPI report. Headline Y/Y printed at 1.5% (vs exp. 1.3%), and pertinently above the Bank’s Q4 average forecast of 1.2%; importantly the Core Y/Y metric remains unchanged at 0.5%, evidence that second round effects are yet to enter the Swiss economy. A report which keeps the headline within the SNB's 0-2% target range, but if the upturn in inflation continues, money markets will likely bring forward rate hike bets towards mid-2027.
• The Aussie is the clear underperformer this morning, in the aftermath of the RBA policy announcement, alongside losses in copper and gold. The Bank hiked its Cash Rate by 25bps to 4.85%, as expected. There were a few hawkish elements from within the release, namely the RBA sees materially higher inflation (as per its latest forecasts), and noted that risks to inflation are to the upside. On the dovish side (and driving the AUD downside), the decision was subject to dissent from three members, who opted to pause rates. Moreover, the Bank refrained from any hawkish guidance; Governor Bullock stated that she will not be offering guidance, adding that it is “probably good to wait now and see incoming data”. Overall the RBA sounded a bit more cautious than in previous meetings, which has led AUD/USD to trade with losses of c. 0.3%, within a 0.6962 to 0.7003 range.

The AUD leg is the cleaner signal here. Delivering the hike but declining to guide is a well-worn pattern at the mature end of a tightening cycle: the rate action confirms the hiking bias, but the absence of forward commitment shifts the burden onto each incoming data print, and the currency typically trades the guidance gap rather than the move itself. A three-member dissent for a pause adds to that read, since visible board division has historically preceded a plateau in policy and a fading of rate-differential support, with AUD left more exposed to the copper and metals complex and China-linked sentiment as the domestic rate story loses force. The RBA's explicit refusal to offer guidance makes the next inflation and labour releases the operative tells, along with how the dissenters' case evolves at subsequent meetings. On the USD side, midterm-day trade has a familiar shape: thin ranges into the count, the dollar moving on the congressional arithmetic via the fiscal and shutdown-transmission channel rather than on any immediate policy change, and sell-side preference for the funding and safe-haven crosses, JPY and CHF, as the hedge expression. The CHF firmness on a hot headline print against an unchanged core fits the SNB's historical patience, where the Bank has tolerated headline drift within target while core stays subdued, making any repricing of the policy path contingent on the core measure following. Worth watching is whether AUD underperformance persists past the initial guidance-gap move and whether the dollar's post-result direction matches the short-term negative pattern the piece describes or fades with the position unwind.