FX.co ★ Australian Dollar Rallies on RBA Hike Bets

The Australian dollar climbed above $0.70, extending its rally to a more than three-week high, after hawkish remarks from a senior central bank official increased expectations of another interest rate hike. RBA Deputy Governor Andrew Hauser noted that tighter monetary policy is having an impact, but cautioned that the inflation outlook remains “materially worse,” in part due to persistently high oil prices. He emphasized the importance of keeping inflation expectations firmly anchored ahead of the RBA’s November 3 policy meeting, at which policymakers will decide whether to raise rates for a fifth time this year.

Money markets now imply a 44% probability of a November rate increase, up from 30% at the start of the week, while the odds of a December move have risen to 64%. Attention is now turning to next week’s release of third-quarter inflation data. Core inflation is forecast to increase 1.0% quarter-on-quarter, compared with 0.9% in the previous quarter, while annual core inflation is expected to hold at 3.5%, remaining above the RBA’s 2%–3% target band.