FX.co ★ Australian Dollar Pauses Rally

The Australian dollar held near $0.72, pausing its advance close to the highest level since mid-May, as mounting tensions in the Middle East dampened global risk appetite. At the same time, hawkish signals from the Reserve Bank of Australia (RBA) underpinned expectations of a near-term interest rate increase. Iran and the US exchanged strikes on oil tankers in the largest wave of attacks on shipping since the start of the conflict, raising the risk of further disruptions to Gulf energy supplies. That drove oil prices above $100 per barrel, intensifying inflationary pressures that are already filtering through to domestic consumer prices and bolstering bets on a fourth rate hike this year. Deputy Governor Hauser noted that the key question at the RBA’s next meeting would be whether to raise rates again, citing stubbornly high inflation and upside risks. Markets are now pricing in a 77% probability of a 25-basis-point hike at this month’s meeting, while traders are also assigning an 80% chance that the cash rate will reach 4.85% next year.