Australian Dollar Set for 2nd Monthly Gain

The Australian dollar held below $0.72 but remained near its highest level since early June and on track for its second consecutive monthly gain amid growing odds of an imminent interest rate hike. Markets now priced in a 52% probability that the fourth rate hike this year could come as soon as next month, up sharply from 17% previously, while a November move is fully priced in. The stronger outlook for tighter policy came after a hotter-than-expected July inflation report and resilient household spending data, prompting several major banks to revise their forecasts. NAB sees a possible move as early as the September 29–30 meeting, while CBA and ANZ expect a hike in November but acknowledge the possibility of earlier tightening. Meanwhile, the US dollar broadly advanced after Federal Reserve Chair Kevin Warsh struck a hawkish tone at the Jackson Hole symposium last week in his debut speech, saying policymakers may need to take further action if inflation remains elevated.

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.