FX.co ★ Australian Dollar Holds at 4-Month Top

The Australian dollar held above $0.72, hovering near a four-month high as mounting expectations of another interest rate hike by the Reserve Bank of Australia (RBA) continued to underpin the currency, while the US dollar remained broadly weaker. The greenback struggled to hold onto the brief boost it received from a jump in US rate-hike expectations following Friday’s stronger-than-expected US jobs report. Market participants also remained cautious ahead of Friday’s US CPI release, which could shape expectations for the Federal Reserve’s policy trajectory.

In Australia, robust GDP growth and elevated inflation have strengthened expectations that the RBA will lift rates again at its meeting later this month. Markets are now pricing in a 66% probability of a quarter-point hike to 4.60%, a sharp increase from around 10% just a couple of weeks earlier, while the odds of a further move to 4.85% have risen to 50%. At the same time, ongoing tensions in the Middle East have amplified concerns about broader inflationary pressures, reinforcing the risk that central banks may feel compelled to keep tightening monetary policy.