Australian Dollar Hits 4-week High

The Australian dollar held around $0.72, near a fifteen-week high and headed for a ninth consecutive weekly gain, its longest weekly winning streak since 2010 as markets ramped up bets of an imminent rate hike. The stronger outlook for tighter policy came after a hotter-than-expected July inflation report and household spending data, which rose 1.1% in July, pointing to continued strength in domestic demand despite elevated borrowing costs. The stronger economic figures prompted traders to bring forward bets on an RBA move and several major banks to revise their forecasts, with NAB expecting the cash rate to rise to 4.6% next month, while CBA and ANZ forecast a November move but acknowledge the possibility of earlier tightening. Markets are pricing roughly a 50% chance of a rate increase at the RBA’s September meeting, up sharply from 17% previously, while a November move is fully priced in. Attention now turns to Q2 GDP and employment data for further clues on the policy outlook.

The Australian dollar rose toward $0.72, extending its rally to a fresh three-month high amid growing expectations of an interest rate hike as early as next month. The shift in rate expectations followed hotter-than-expected July inflation print, which showed price pressures remained elevated and prompted several major banks to revise their RBA forecasts. National Australia Bank now expects the central bank to raise its cash rate to 4.6% at the September 28-29 meeting, while Commonwealth Bank and ANZ see a hike in November, with both flagging a risk of an earlier move. Markets are pricing roughly a 50% chance of a September hike, sharply higher from 17% before the inflation report, while a November increase is now fully priced. The RBA kept its cash rate at 4.35% in August after three hikes earlier this year, but policymakers have warned they could tighten further if inflation risks build. Focus now turns to Q2 GDP next week and jobs data for further clues on the policy outlook.

The Australian dollar rose toward $0.72, hitting a twelve-week high as hotter-than-expected July inflation data fueled the risk of another hike in interest rates. The monthly CPI rose 1.0% in July from June, above forecasts for a 0.8% increase, while annual inflation eased to 3.5% from 3.8%, but remained above expectations of 3.3%. Meanwhile, the trimmed mean measure of core inflation increased 0.5% in the month, above forecasts of 0.3%, leaving annual underlying inflation at 3.6%. The stronger-than-expected figures come amid repeated warnings from the Reserve Bank that inflation remains too high and that risks remain pointed upwards. The RBA has already raised interest rates three times this year in an effort to get inflation back to target, and Governor Michele Bullock said after the latest meeting that another increase was “quite possible.” Markets now raised the probability of a rate hike next month to 27% from 17%, while a move by February next year is now priced at 80%.