Australian Dollar Hits 9-Week Low

The Australian dollar fell below $0.70, hitting a nine-week low after August inflation figures undershot forecasts, trimming bets of near-term interest rate hikes. The monthly CPI rose 0.4%, below the expected 0.5%, while the annual pace accelerated to 4% from 3.5% in July but was below the 4.1% forecast. The trimmed-mean measure of core inflation rose 0.2% month-over-month, also under the 0.3% forecast. However, annual core inflation held at 3.6% for a third straight month and remained above the Reserve Bank’s 2–3% target band, a key factor behind the central bank’s decision to lift rates to a 15-year high of 4.60% on Tuesday. The marginal inflation miss still led markets to cut the odds of another hike in November to 20% from 36% before the data, while the next increase is now seen more likely in March rather than February. The Aussie is now on track for a roughly 2.8% monthly loss, as a stronger US dollar and ongoing Middle East tensions weighed on the risk-sensitive currency.

The Australian dollar fell below $0.70, hitting a nine-week low despite the central bank’s widely expected interest rate hike. In a unanimous decision, the Reserve Bank of Australia raised its cash rate by 25 basis points to 4.60%, the highest level since 2011, citing persistent inflationary pressures and higher global energy prices stoked by the Middle East conflict. The central bank has now raised rates four times this year by a total of 100 basis points, but the September move has already been largely priced into markets. Swaps priced in a 56% chance of a follow-up move in November, while the odds of a December hike stood at 60%. Meanwhile, the Aussie remained under pressure from a stronger US dollar and higher Treasury yields, as markets continued to price further Federal Reserve tightening. Attention now turns to Australia’s August inflation data due on Wednesday after a stronger-than-expected July core inflation reading reinforced concerns about persistent price pressures.

The Australian dollar traded around $0.70, near an eight-week low as investors remained cautious ahead of the Reserve Bank of Australia’s monetary policy meeting. The Aussie finished 1.4% lower last week, its third straight weekly loss, battered by a broadly stronger US dollar and elevated US Treasury yields as the Federal Reserve raised interest rates earlier this month and signaled the possibility of further increases. The losses came despite markets having largely priced in a 25-basis-point rate hike to 4.60% by the RBA on Tuesday, its fourth rate hike this year. Markets are pricing in about 40 bps of more tightening after Tuesday. Attention is also on the upcoming monthly inflation data for August. Forecasts are centered on an annual rise of 4% in headline inflation, picking up from 3.5% in July, as petrol prices jumped, while underlying inflation remained sticky at 3.6%. Oil prices remained elevated as uncertainty persisted over whether the US and Iran could reach a truce soon.