AUD/USD edges higher before RBA rate call amid softer Greenback

• The Australian Dollar extends gains for a second day, with AUD/USD up 0.50%.
• The US Dollar remains on the back foot amid uncertainty over the looming US government funding deadline.
• Investors are focused on the RBA's policy decision due on Tuesday at 04:30 GMT.

The Australian Dollar (AUD) ticks higher against the US Dollar (USD) on Monday, with AUD/USD extending gains for a second straight day as the Greenback remains under pressure. The US Dollar's weakness stems from investor caution over the looming US government funding deadline, with market participants weighing the risk of a potential shutdown if no agreement is reached by October 1.

Political leaders are set to meet at the White House on Monday for last-minute negotiations, after US President Donald Trump called the meeting to strike a deal and avert a lapse in government funding.

At the time of writing, AUD/USD is trading near 0.6580 during the American session, up almost 0.50% on the day. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is struggling just below the 98.00 psychological mark.

The spotlight now shifts to the Reserve Bank of Australia's (RBA) policy meeting on Tuesday at 04:30 GMT, where the central bank is widely expected to hold its cash rate steady at 3.60%. The RBA has eased policy by 75 basis points so far this year. Investors will focus on the tone of the accompanying monetary policy statement for guidance on the policy path into the final quarter of the year.

Domestic data have been mixed. Australia's Gross Domestic Product (GDP) grew 0.6% QoQ in Q2, beating expectations of 0.5% and accelerating from 0.3% in Q1, while annual growth rose to 1.8% from 1.4%. At the same time, the ABS Monthly Consumer Price Index (CPI) rose to 3.0% YoY in August from 2.8% in July, and the underlying measure excluding volatile items climbed to 3.4% YoY, indicating some stickiness in near-term price pressure even as the quarterly trimmed-mean gauge eased to 2.7% in Q2 from 2.9% in Q1.

Labour-market indicators show signs of cooling. Total Employment unexpectedly fell by 5.4K in August, against forecasts for a 22K increase, with a sharp 40.9K drop in Full-time jobs, while the Unemployment Rate held steady at 4.2%. This slackening in labour demand points to a moderating economy and reinforces the RBA's case for patience. Still, the uptick in headline and core monthly inflation tempers expectations for an imminent easing.

A recent Reuters poll of 39 economists showed all respondents expect the RBA to keep the cash rate steady on Tuesday. Looking ahead, ANZ, Commonwealth Bank, and Westpac all expect the next rate cut in November, while NAB has ruled out further cuts this year and now projects the next move in May 2026.