AUD/USD holds recovery near 0.6600 ahead of RBA policy, US elections

• AUD/USD holds onto recovery near 0.6600 with RBA policy and US elections in focus.
• The RBA is expected to leave interest rates unchanged at 4.35%.
• Trump-Harris battle and Fed policy will keep market sentiment on its toes.

The AUD/USD pair clings to gains made in Asian trading hours near the key resistance of 0.6600 in Monday's North American session. The Aussie pair remains firm ahead of the Reserve Bank of Australia's (RBA) monetary policy announcement and the United States (US) presidential elections on Tuesday.

The major witnessed strong buying interest in the Asian session as the US Dollar (USD) plunged after the Des Moines Register/Mediacom Iowa Poll pointed to tough competition between current Vice President Kamala Harris and former President Donald Trump. Polls showed Harris up three points against Trump in the state where the latter won in the 2016 and 2020 elections, Reuters reported.

At the time of writing, the US Dollar Index (DXY), which gauges Greenback's value against six major currencies, is down almost 0.6% near 103.70.

The scenario of Trump's victory would be favorable for the US Dollar as he is expected to support protectionist policies such as a hike in tariffs on imports and lower taxes, which would prompt upside risks to inflationary pressures. While Harris's victory would signal a continuation of current policies, which would be beneficial for risk-sensitive currencies.

This week, the US Dollar will also be influenced by the Federal Reserve's (Fed) interest rate decision, which will be announced on Thursday. The Fed is expected to cut interest rates again but at a slower pace of 25 basis points (bps) to 4.50%-4.75%. In September, the Fed started its rate-cut cycle, however, the Fed opted for a larger-than-usual cut of 50 bps.

Meanwhile, the Australian Dollar (AUD) will be influenced by the RBA's policy in which the central bank will keep its Official Cash Rate (OCR) steady at 4.35%. Investors will pay close attention to RBA Governor Michelle Bullock's press conference to get cues about when the central bank will pivot to policy normalization.