AUD Holds Gains Near 0.7100 Despite Fed Rate Hike, IMF Urges RBA Hawkishness

The Australian Dollar (AUD) held its gains near 0.7100 despite the Federal Reserve's interest rate hike, as expected. The IMF urged the Reserve Bank of Australia (RBA) to remain hawkish and keep interest rates high to combat inflation risks.

Fed Chair Kevin Warsh said that the rate hike was necessary because 'inflation is too high and has been for too long.' He added that it's a 'sober' and 'responsible decision,' signaling that further rate increases could be on the horizon. The market expects around 49.8% chance of another Fed hike in October, according to the CME FedWatch tool.

Meanwhile, US President Donald Trump demanded that the central bank slash interest rates to 1% or less, citing the need for economic growth. However, this view was not shared by Michael Gapen, chief US economist for Morgan Stanley, who said 'that's hawkish. If the chair thinks policy is accommodative, then you've got more work to do.'

The RBA has kept its Official Cash Rate (OCR) at 4.35%, but markets are pricing in a nearly 76% chance of another rate hike to 4.60%. The IMF also suggested that the government could support disinflation by reining in spending.