Australian Dollar Pauses Rally

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.

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.