AUD Holds Firm Amid Hawkish Expectations from Fed and RBA

Australian Dollar (AUD) is holding firm despite hawkish expectations from both the Federal Reserve and the Reserve Bank of Australia, according to a recent analysis by FX strategists at OCBC.

The Fed's Chair Kevin Warsh emphasized that inflation remains above target during his speech at the Jackson Hole symposium on Friday, reiterating that interest rates are the primary tool for restoring price stability. This led to a surge in US Dollar (USD) and front-end Treasury yields.

However, the Greenback lost momentum on Monday and retraced most of its gains from Friday, with the US Dollar Index (DXY) trading at around 99.41, down 0.27% on the day.

The RBA's expectations are also being closely watched, as FX strategists at OCBC believe that their 'base case remains that the RBA has reached the end of its tightening cycle.' However, they note that a stronger-than-expected CPI print and resilient household spending have kept the risk of another rate hike alive.