Aussie Holds Near Multi-Month Highs

The Australian dollar hovered below $0.72, holding near its highest level since early June as a global bond selloff kept investors cautious. Rising concerns over US budget deficits and debt levels pushed Treasury yields higher, while Australian markets faced pressure from expectations that interest rates may need to stay elevated for longer to curb inflation. Markets now see a 54% chance of a 25-basis-point RBA rate hike to 4.60% on September 29, up from just 10% a week earlier, while the probability of another increase to 4.85% stands at 40%. Rate-hike expectations strengthened even as recent data pointed to weaker economic momentum, with net exports and government spending suggesting the economy slowed in the second quarter. Investors now await the Q2 GDP report due Wednesday, with economists expecting growth of just 0.3% quarter-on-quarter and annual growth to ease to 1.8% from 2.5%. Still, core inflation remains high at 3.6%, keeping pressure on the RBA to hike rates again.

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.