AUD Hits 4-Month High on Rate Hike Expectations Amid US Dollar Weakness

The Australian dollar has held its ground at a four-month high above $0.72, as investors continue to bet on another interest rate hike by the Reserve Bank of Australia.

This surge in expectations comes despite the US dollar remaining broadly weaker after Friday's blowout jobs report gave it a brief lift.

However, caution is still prevalent ahead of this week's US Consumer Price Index (CPI) report, which could influence the Federal Reserve's policy path and impact market expectations.

Australia's strong GDP growth and inflation data have increased the likelihood of another rate hike, with markets now pricing in a 66% chance of a quarter-point increase to 4.60%, up from just 10% two weeks ago. Meanwhile, there is also a 50% chance of a further rise to 4.85%.

The ongoing tensions in the Middle East have heightened concerns over broader inflationary pressures, raising the prospect that central banks could keep tightening policy.