FX Daily: Democratic sweep can weigh on the dollar

A Democratic sweep in the US midterms could pressure the dollar temporarily, but it is unlikely to cause a structural FX shift, while the RBA’s dovish hike weakens the near-term AUD outlook without overturning ING’s medium-term optimism.

• All 435 House seats and 35 Senate seats are being contested; prediction markets assign Democrats a 74% chance of taking the Senate, and a clean sweep could raise concerns about AI-stock regulation and fiscal-policy gridlock.
• ING expects the dollar to remain driven mainly by the Federal Reserve, with a split Congress likely to have a neutral or slightly positive USD impact; Brent has also fallen below $105 per barrel.
• EUR/USD is attempting to establish support at 1.120, but French spreads above 150 basis points continue to reflect a persistent euro risk premium, while hawkish ECB comments support expectations of at least one more rate hike.
• The RBA raised rates to 4.85% by a 6-3 vote, removed its reference to possible further hikes, and downgraded the economic outlook; markets price only a one-in-three chance of another hike and 13 basis points of easing by end-2027.
• ING expects no further RBA hikes but retains a year-end AUD/USD target of 0.710; in Central and Eastern Europe, political risks, Poland’s EU-highest public-finance deficit and an expected dovish NBP tone make the zloty the weakest regional currency, with EUR/PLN expected above 4.420.

Takeaway: Midterm volatility should be short-lived for the dollar, while AUD weakness is viewed as a buying opportunity and the zloty remains vulnerable; these views depend on the Fed staying dominant, energy prices not worsening materially and regional political risks remaining contained.