Aussie Holds Firm After RBA Minutes

The Australian dollar held above $0.71, trading near an eleven-week high as markets weighed the RBA’s August meeting minutes. While the Board judged the current cash rate was sufficiently restrictive to bring inflation back to target within a reasonable timeframe, several members saw a meaningful risk that inflation could prove more persistent than expected. The RBA held rates at 4.35% for a second straight meeting two weeks ago after three hikes earlier this year, but policymakers warned of further tightening if inflation risks materialize. Still, weak jobs data has reduced expectations for an immediate hike, with markets pricing only a 13% chance of a September increase, while seeing around a 67% probability of a hike by February 2027. Upcoming monthly inflation data on Wednesday will therefore be crucial for the policy outlook. Headline inflation is expected to ease to 3.2% from 3.8% despite a 0.8% monthly rise, while the trimmed mean is forecast to edge down to 3.5% from 3.6%.

The Australian dollar held above $0.71, staying near a twelve-week high as broad weakness in the US dollar continued to support the currency. The Aussie finished up 1.2% last week, marking its longest weekly winning streak since 2020, as the greenback came under pressure from concerns over US fiscal policy and the effectiveness of Treasury debt buybacks. Meanwhile, markets are awaiting Australia’s July inflation data due Wednesday for clues on the RBA's next move. The central bank kept its cash rate at 4.35% this month, although Deputy Governor Hauser said further hikes remain possible if inflation risks from the Middle East conflict, AI investment and weak productivity materialize. A weaker labor market has tempered bets for further tightening, but markets still price in roughly 60% odds of a year-end hike, while a February move is about 68% priced in. Elsewhere, investors continued to monitor tensions in the Middle East, with the US expected to announce new sanctions against Iran.

The Australian dollar rose above $0.71, hitting an eleven-week high and headed for an eight consecutive weekly gain, the longest weekly winning streak since 2020 amid broad weakness in the US dollar. The greenback remained under pressure after a surprise US buyback plan in the Treasury market failed to calm the bond markets. Investors questioned whether the intervention could provide lasting reprieve from elevated long-term borrowing costs, prompting a rebound in US Treasury yields and reinforcing concerns over the country’s widening fiscal deficit and heavy debt burden. The weaker dollar more than offset pressure from softer Australian labor data, which showed employment fell in June and unemployment climbed to a near five-year high of 4.5%. Still, the data was not considered weak enough to fully eliminate expectations for further RBA tightening. Markets imply just a 13% chance for a rate hike to 4.6% next month but a move by February next year is about 68% priced in.