Australian Dollar Rallies on RBA Hike Bets

The Australian dollar rose above $0.70, extending its rally to a more than three-week high as hawkish comments from a top central bank official boosted the odds of another interest rate hike. RBA Deputy Governor Andrew Hauser said tighter monetary policy was working, but warned that the inflation outlook remained “materially worse” partly due to elevated oil prices. Hauser stressed the need to anchor inflation expectations ahead of the RBA’s November 3 policy meeting, where policymakers will consider whether to raise rates for a fifth time this year. Markets now price in a 44% chance of a November hike, up from 30% at the start of the week, while the probability of a December move has climbed to 64%. Focus now turns to third-quarter inflation data due next week, with core inflation expected to rise 1.0% quarter-on-quarter, up from 0.9% previously. Annual core inflation is also projected to remain at 3.5%, well above the RBA’s 2%-3% target range.

The Australian dollar held its recent gains near $0.70, remaining above multi-month lows as investors awaited further clues on the policy outlook. RBA Deputy Governor Andrew Hauser is due to speak on Wednesday, which could provide insight into the prospects for a fifth rate hike this year. An RBA official recently noted that the labor market may be cooling faster than anticipated, though the next inflation report on October 28 remains key to the policy outlook. Core inflation is expected to rise by 0.9–1.0% in the third quarter, potentially lifting the annual rate to 3.5–3.6%, above the RBA’s 2–3% target and its 3.3% forecast. Governor Michele Bullock and other officials will also face lawmakers that day, offering an opportunity to address the latest figures. Markets now price in roughly a one-in-three chance of a November hike, rising to 56% for December. Elsewhere, the Aussie also drew support from a broadly weaker euro as political concerns in France weighed on the single currency.

The Australian dollar rose toward $0.70, bouncing off multi-month lows after a top central bank official questioned whether rates were restrictive enough. Despite four rate hikes this year, RBA Assistant Governor Christopher Kent cited evidence that neutral interest rates were rising in Australia and abroad. A higher neutral rate could mean the 4.6% cash rate is exerting less pressure on demand and inflation than expected, keeping the door open to further tightening. Kent also acknowledged signs of labor market easing but cautioned against over-interpreting monthly data after unemployment rose to a five-year high of 4.7% in September. Investors now await Deputy Governor Andrew Hauser's speech this week for further clues on the policy outlook. Elsewhere, the Aussie was aided by broad weakness in the euro, after unrest in France weighed on sentiment. Upbeat economic data in China, Australia's top trading partner, also boosted demand for key commodities such as iron ore and copper.