Australian Dollar Stays Near 3-Month Lows

The Australian dollar held its recent decline below $0.72, staying near its lowest in more than a week and on track for a weekly loss as the US dollar strengthened alongside a sharp rise in Treasury yields. The greenback gained after US producer inflation came in stronger, reinforcing expectations that the Fed could raise rates next week. A sharp rise in Treasury yields also underpinned the dollar following lower-than-expected purchases by the US Treasury Department during its first expanded buyback operation. Meanwhile, oil prices continued to rise above $100 per barrel amid the escalating Middle East tensions, raising inflation risks and expectations that central banks may keep policy tighter for longer. Markets ramped up bets on a fourth rate hike this year by the Reserve Bank of Australia, with swaps now implying an 84% chance of a 25-bp increase at the upcoming meeting this month. Markets also expect the cash rate to reach 4.85% by early next year, its highest level since 2008.

The Australian dollar steadied around $0.72, halting its rally near its highest level since mid-May as escalating Middle East tensions weighed on global risk sentiment, though hawkish RBA signals reinforced expectations for a near-term rate hike. Iran and the US struck tankers in the biggest wave of attacks on shipping since the war began, threatening to worsen the disruption of energy supplies from the Gulf. This pushed oil prices above $100 per barrel, intensifying inflationary pressures that have already started feeding into domestic consumer prices, which has increased expectations of a fourth interest rate hike this year. Deputy Governor Hauser said the debate at the next meeting would focus on whether to raise interest rates, citing persistently high inflation and upside risks. Markets now price in a 77% chance of a quarter-point hike at the RBA’s upcoming meeting this month, while traders are also implying an 80% probability that the cash rate will reach 4.85% next year.

The Australian dollar edged above $0.72, moving toward a four-month high as increasingly hawkish signals from the Reserve Bank continued to reinforce expectations for another rate hike this month. Deputy Governor Andrew Hauser said late Tuesday that the central bank will debate the case for higher rates at its September meeting, citing persistently high inflation and upside risks. Assistant Governor Sarah Hunter also said the RBA has little tolerance for stronger inflation and may need to raise rates for a fourth time this year. The central bank has already increased its cash rate three times in 2026 as surging oil prices linked to the Gulf conflict pushed inflation higher. Markets are now pricing a 74% probability of a 25-basis-point hike at the September 29 meeting, up sharply from less than 10% a month ago, while a November move is fully priced in. Elsewhere, strong trade data from China supported the Chinese-proxy Aussie, while a widening war in the Gulf weighed on risk sentiment.