FX.co ★ Aussie Dollar Approaches 3-Year Highs

The Australian dollar advanced to approximately $0.703 on Wednesday, building on the previous day's rally driven by the Reserve Bank's hawkish policy stance. This movement pushes the currency closer to its three-year highs as the market anticipates further interest rate hikes. An optimistic services PMI also contributed to this upward trend. In its February meeting, the Reserve Bank increased its cash rate for the first time in two years, responding to stronger economic growth and persistent inflation concerns. With the central bank initiating a cycle of rate hikes, investors are now placing an 80% probability on a rate increase in May, with roughly 40 basis points of further tightening anticipated by 2026. Analysts highlighted that although the RBA's primary scenario involves just one additional hike, persistent inflation risks could necessitate further increases. This perspective is supported by recent data revealing that Australia's services sector has experienced its most robust expansion in nearly four years, highlighting the ongoing economic upswing. Participants in the market are now looking to the upcoming trade balance data this week for additional insights into the economy's condition.