AUD Hits Three-Month High as Strong GDP and Hawkish Rate Hopes Boost Australian Dollar

The Australian dollar surged to a three-month high on Monday, September 7, as stronger-than-expected GDP growth reinforced expectations of an upcoming rate hike by the Reserve Bank of Australia (RBA). The AUD/USD pair rose 0.25% to near 0.7220, marking its highest level since May 15.

The second-quarter GDP data showed a 0.4% quarter-on-quarter and 2.1% year-on-year growth, both exceeding market forecasts. Rabobank stated that these results have 'basically locked in' the possibility of an RBA rate hike this month.

Deputy Governor Hauser's speech on Tuesday will be closely watched for any hawkish signals that could further drive the Australian dollar to test levels of 0.7250 or higher. However, external factors such as rising expectations of US rate hikes and fluctuations in global risk sentiment may constrain the AUD's upside.

Meanwhile, US non-farm payrolls increased by 162,000 in August, exceeding expectations and raising the probability of a September rate hike to 62%. Nevertheless, the US dollar has not strengthened significantly. Commerzbank pointed out that the NFP report alleviated concerns about the labor market, making this week's PPI and CPI data the most critical inputs ahead of the September FOMC meeting.

If inflation data comes in moderate, the probability of a rate hike may decline, putting pressure on the US dollar and potentially allowing the Australian dollar to rise further. Conversely, if inflation runs hot, expectations for a rate hike will solidify, likely strengthening the US dollar and capping gains for the Australian dollar.