Aussie Dollar Gains as RBA Flags Hotter Inflation

The Australian dollar rose to around $0.70, moving back near multi-week highs as investors await upcoming inflation figures this week for clues on the Reserve Bank’s policy outlook. The second-quarter CPI report, due on Wednesday, is expected to show core inflation rose 0.9% in the quarter, lifting the annual rate to 3.7% from 3.5%. The anticipated reading would remain well above the RBA's 2%–3% target range, reinforcing bets that policymakers will maintain a tightening bias. Markets currently imply a 30% chance the RBA will lift the 4.35% cash rate in August, with a move by November almost fully priced. Meanwhile, a pause in the US-Iran conflict supported risk appetite. Oil prices retreated, while the US dollar weakened after Washington suspended its nearly two-week campaign of strikes against Iran, while Tehran said it had ended its retaliatory attacks. Elsewhere, focus is on the upcoming monetary policy meeting by the US Federal Reserve, where rates are expected to be left on hold.

The Australian dollar traded below $0.698 and was on track for its first weekly loss in a month, pressured by a stronger US dollar as higher oil prices and renewed trade tensions fueled inflation concerns. Brent crude climbed above $100 per barrel after Houthi attacks on Saudi oil tankers in the Red Sea, while President Donald Trump threatened further action against Iran. Fresh US tariffs on goods from 60 trading partners added to inflation concerns, reinforcing expectations that interest rates could remain higher for longer. The stronger greenback erased gains the Aussie had made after domestic jobs data beat forecasts, while soaring oil prices also strengthened the case for another Reserve Bank of Australia rate hike. Markets now imply a 40% chance the RBA will lift the 4.35% cash rate in August, up from just 10% a few weeks ago, with a move by November almost fully priced. Investors now await second-quarter inflation data due next week for further clues on the policy outlook.

The Australian dollar rose above $0.70, reaching a five-week high as a stronger-than-expected labor market report reinforced expectations of another interest rate hike. Net employment surged by 76,300 in June, the biggest increase since April last year and far above forecasts of a 15,300 gain, while the unemployment rate held at 4.4% as expected, with the participation rate rising to a one-year high of 67%. The upbeat data reinforced signs of tight labor conditions and prompted markets to boost the odds of another rate hike by year-end to 90%, up from 78% previously. Combined with higher oil prices amid renewed fighting in the Middle East, the strong jobs report added to uncertainty over the inflation outlook and increased pressure on the Reserve Bank of Australia to keep policy restrictive. Investors now await second-quarter inflation data due next week, with core inflation expected to accelerate to 3.7% annually from 3.5%, remaining well above the central bank's 2%-3% target band.