The Australian dollar held a firmer tone on Monday as investors trimmed U.S. dollar exposures ahead of a potential federal government shutdown, lifting the risk-sensitive Aussie dollar while taking some shine off the greenback.
The move unfolded in thin Asia trading, where price action often amplifies headline risk tied to Washington’s fiscal brinkmanship.
Funding for the U.S. government lapses at midnight on Tuesday if Congress cannot pass a stopgap bill.
A lapse would begin on Wednesday, the first day of the 2026 fiscal year, and could delay the publication of some economic data that the Federal Reserve watches closely.
Market desks flagged the monthly jobs report due Friday as one release that could be pushed back if agencies go dark.
The dollar eased as traders weighed that uncertainty against last week’s sturdier run for the currency.
By late Asia hours, the Aussie dollar was modestly higher near 0.657 against the U.S. dollar, building on a cautious bid seen across several majors. The dollar index slipped around two tenths of a percent after rising the prior week.
The directional tone fit a familiar pattern for shutdown episodes, where FX markets tend to shade away from the dollar unless the growth outlook diverges sharply.
A prolonged shutdown would inject more volatility, but even short standoffs can cloud the data calendar and trim positioning.
Domestic factors also helped steady the Aussie, Australia’s August monthly CPI indicator rose 3.0 percent year over year, up slightly from July but still broadly consistent with the Reserve Bank of Australia’s message that inflation is easing back toward target.
That backdrop has left consensus coalescing around no change at Tuesday’s RBA meeting, with investors focused on the wording of Governor Michele Bullock’s statement for clues on the pace of any further easing later this year.
The RBA’s cash rate target stands at 3.60 percent, with the decision due at 2:30 p.m. AEST on September 30 in Sydney.
If the RBA sticks to a patient script and the U.S. shutdown risk persists into October, the near-term balance of risks favors a slightly higher AUD against the dollar.
The currency still trades at a discount to its peaks from earlier cycles, and sentiment remains sensitive to global growth headlines and China-linked demand for Australia’s exports.
A more forceful RBA nod to sticky services prices could add support.
Conversely, any sign that Congress is closing in on a continuing resolution would quickly pull the dollar back into favor, especially if that clears the way for the jobs report to land on schedule.
Investors will parse a stacked U.S. calendar either way. Job openings, private payrolls, and the ISM manufacturing survey arrive before Friday’s employment data and could reshape expectations for the Fed’s late October meeting.
Futures continue to imply further easing by year end, but officials have repeated that incoming data will drive the path. In FX space, that keeps the focus on interest-rate differentials.
A softer U.S. policy path relative to peers typically narrows the dollar’s advantage and helps pro-cyclical currencies like the Aussie.
Two swing variables sit just beyond the immediate horizon. First, the duration of any shutdown matters.
A brief lapse that mostly delays data could have a contained effect on FX, while a longer standoff that dents confidence or forces agencies to halt routine operations would likely deepen the dollar’s pullback.
Second, the RBA’s forward guidance could surprise. Markets expect a hold, but even subtle changes in the Bank’s risk balance on inflation and growth often ripple quickly through AUD crosses.
The Aussie’s bid looks more like a safety valve against U.S. fiscal noise than a wholesale re-rating of Australia’s outlook.
If Washington averts a closure and Friday’s labor data beat expectations, the dollar’s slide could fade just as quickly.
If not, the greenback’s defensive posture may persist into the new quarter, leaving the Australian dollar with a modest tailwind.
