AUD Near Four-Month High as RBA Rate Hike Bets Diverge from RBNZ

Australia's dollar is hovering near a four-month high as traders price in another interest-rate hike from the Reserve Bank of Australia. This, combined with expectations that New Zealand's central bank will pause its rate hikes next month, has led to a divergence in market expectations.

Currency markets often follow interest-rate expectations because higher rates can make a country's assets pay more, drawing in cash. Traders see a 67% chance the Reserve Bank of Australia raises rates again this month, which would widen the expected gap with the Reserve Bank of New Zealand, where markets lean toward an 80% chance of a pause next month.

This divergence has helped lift the Aussie from its June low and push AUD-NZD close to a 13-year high around NZ$1.2268. Investors are keeping one eye on upcoming US inflation data that could strengthen the US dollar and take some shine off the trade.