AUD Plummets as Fed Rate Hike Bets Hit Record High

The Australian dollar extended its decline to near a two-week low after hotter-than-expected US inflation data strengthened the case for a Federal Reserve rate hike.

Following the release of the inflation data, traders increased their wagers that the Fed will raise rates at its meeting next week, pricing in an 86% chance of a hike. This is accompanied by another potential rate increase later in the year, which boosted the US dollar.

In Australia, hawkish comments from the Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter, who stated that the central bank may need to raise rates again if inflation proves more persistent than expected, added to market pressures. Additionally, rising oil prices pushed markets to price in a 90% chance of a rate hike later this month.

The Brent crude price continued to rise above $100 a barrel due to supply concerns following the closure of a key Saudi oil pipeline and Houthi strikes on Saudi Arabia as well as Iranian attacks on ships in the Gulf.