AUD Declines Despite RBA Warning on Potential Further Rate Hikes
The Australian Dollar (AUD) has declined despite a recent warning from the Reserve Bank of Australia (RBA) that further interest rate hikes are possible. RBA Assistant Governor Chris Kent noted that recent rate hikes are producing their intended effect, but cautioned that further increases remain on the table if new inflationary risks emerge.
The AUD/USD pair has edged lower for the third successive day, trading around 0.7060 during Asian hours on Friday. Analysts at BNY Mellon believe that the RBA's earlier rate hikes are now feeding through to the real economy, with higher borrowing costs and a stronger Australian dollar tightening financial conditions.
The weakening US Dollar (USD) following softer-than-expected US inflation data has provided support for the AUD/USD pair. The core Producer Price Index (PPI) rose 0.2% in July, coming in slightly below market consensus of 0.3%. This has shifted expectations regarding Federal Reserve policy, with markets now pricing in a 34.8% probability of a U.S. rate hike at the upcoming September meeting, down from 40% immediately following the PPI data release.