Aussie Dollar Hovers Near Multi-Month Highs

The Australian dollar hovered above $0.72, near multi-month highs as increasingly hawkish signals from the Reserve Bank boosted expectations for another rate hike this month. RBA Assistant Governor Sarah Hunter said the board has little tolerance for inflation remaining above target for an extended period and may need to raise interest rates further if price pressures prove stronger than expected. Markets now price around a 69% chance of a 25-basis-point hike to 4.60% at the September 29 meeting, up sharply from less than 10% a month ago, while a November move is fully priced in. The currency also benefited from broad US dollar weakness and extended gains against the euro, which slipped to a near two-year low. However, domestic headwinds limited further gains, with NAB business conditions falling to a six-year low in August and consumer sentiment declining sharply in September amid concerns over higher borrowing costs, fuel prices and the weakening housing market.

The Australian dollar held above $0.72, near a four-month high as growing expectations of another interest rate hike by the Reserve Bank continued to support the currency, while the US dollar remained broadly weaker. The greenback struggled to sustain the brief lift it received from a ramp-up in Fed rate hike bets following last week's blowout US jobs report. Caution prevailed ahead of this week's US CPI report, which could influence expectations for the Fed’s policy path. In Australia, strong GDP growth and inflation data have increased expectations that the Reserve Bank will raise rates again at its meeting later this month. Markets are now pricing in a 66% chance of a quarter-point hike to 4.60%, up sharply from just 10% a couple of weeks ago, while the odds of a further increase to 4.85% have risen to 50%. Meanwhile, ongoing tensions in the Middle East have heightened concerns over broader inflationary pressures, raising the prospect that central banks could keep tightening policy.

The Australian dollar broke above $0.72 to a four-month high as expectations of a near-term interest rate hike strengthened, while a weaker US dollar added support. The greenback came under pressure after Federal Reserve Governor Christopher Waller said he would support leaving rates unchanged if inflation pressures continued to ease, prompting investors to trim bets on a Fed rate hike later this month. Traders now await US jobs data due later today for fresh clues on the Fed’s policy outlook. In Australia, stronger GDP data in the second quarter reinforced expectations that the RBA could resume tightening after three rate hikes this year. Markets now price in a 58% chance of a hike this month, up from 49% before, while a November move is fully priced in. Swaps also imply 40 bps of tightening next year, equivalent to one and a half rate hikes. The hawkish outlook was further reinforced by renewed fighting in the Gulf, which pushed oil prices higher and fueled concerns over inflation.