AUD Gains on Hawkish RBA Outlook, Fed Decision Looms

The Australian Dollar gained strength on the expectation of a potential interest rate hike by the Reserve Bank of Australia (RBA) as soon as September. The central bank's recent statement highlighted concerns over inflation, which is expected to stay elevated for some time due to higher oil prices amid tensions in the Middle East.

The RBA left the cash rate unchanged at 4.35% in August but warned of risks to the inflation outlook, particularly due to rising oil prices. Reuters reported that three of Australia's four major banks now expect another RBA rate hike this year, with NAB forecasting a 25-basis-point increase in September.

The US Federal Reserve's (Fed) interest rate decision is also being closely watched, but the latest PCE inflation data released on Wednesday failed to alter expectations for the Fed's September meeting. The CME FedWatch Tool shows around a 62% chance that the Fed will leave interest rates unchanged next month.