FX.co ★ Australian Dollar Hits 4-Month High

The Australian dollar climbed above $0.72 to a four-month high, supported by growing expectations of a near-term interest rate hike and a weaker US dollar. The greenback retreated after Federal Reserve Governor Christopher Waller indicated he would back keeping rates on hold if inflation pressures continue to ease, prompting investors to pare back expectations of a Fed hike later this month. Market participants are now focused on US employment data due later today for further signals on the Fed’s policy path.

In Australia, stronger second-quarter GDP figures have reinforced expectations that the Reserve Bank of Australia could resume tightening after three rate increases earlier this year. Market pricing now reflects a 58% probability of a hike this month, up from 49% previously, while a November increase is fully priced in. Interest rate swaps also suggest an additional 40 basis points of tightening next year, equivalent to roughly one and a half rate hikes. The hawkish outlook has been bolstered further by renewed conflict in the Gulf, which has driven oil prices higher and heightened inflation concerns.