AUD Hits 4-Month High on Hawkish Outlook and Weaker US Dollar

The Australian dollar has reached a four-month high above $0.72 due to increasing expectations of a near-term interest rate hike from the Reserve Bank of Australia (RBA). The stronger Aussie was also supported by a weaker US dollar.

Federal Reserve Governor Christopher Waller said he would support keeping rates unchanged if inflation pressures continued to ease, prompting investors to trim bets on a Fed rate hike later this month. However, traders now await US jobs data for fresh clues on the Fed's policy outlook.

Australia's GDP data in the second quarter reinforced expectations that the RBA could resume tightening after three rate hikes this year. Markets now price in a 58% chance of a hike this month, up from 49%, while a November move is fully priced in. Swaps also imply 40 bps of tightening next year, equivalent to one and a half rate hikes.