AUD Extends Rally Despite Renewed Fed Hawkishness

The Australian Dollar has continued its upward trend for the third consecutive day, increasing by over 0.17% to reach 0.7176 against the US Dollar. This rise comes despite renewed hawkish bets that the Federal Reserve might increase rates by the end of 2026, following the latest US inflation report.

The data showed a 3.3% year-over-year increase in Core PCE, the Fed's preferred inflation gauge, which was in line with expectations and unchanged from the previous month's print. The headline number also remained steady at 3.7% year-over-year, but above forecasts for a decline to 3.6%. As a result, investors have priced in an above-70% chance of a rate increase by the Fed at the December 2026 meeting.

Meanwhile, Australia's trimmed mean inflation was higher than expected in July at 0.5% month-over-month, increasing the likelihood of another hike by the Reserve Bank of Australia (RBA). The swaps market has priced in a 43% chance of an RBA rate hike at the September 29 meeting and 25 basis points of tightening for December.