AUD Rebounds on Revived Rate Hike Expectations Amid Stronger CPI

Australian Dollar (AUD) investors are keeping a close eye on the Reserve Bank of Australia's (RBA) next move after stronger-than-expected Consumer Price Index (CPI) and resilient household spending data. According to OCBC FX Strategist Sim Moh Siong, this development has revived expectations of another RBA hike, with AUD/USD retesting resistance near 0.7180-0.7200.

This repricing has helped markets fully price an additional 25bp hike by end-2026, up from around a 55% probability previously. While the base case remains that the RBA has reached the end of its tightening cycle, there is still a risk of another rate hike.

The positive outlook for AUD over the next one to two quarters is supported by its attractive carry and the prospect of further Chinese policy stimulus. However, over the medium term, the strategists expect AUD to give back some of its gains as inflation continues to move towards target and the RBA gradually shifts away from a restrictive policy stance.

Stronger inflation and resilient spending have revived expectations of another RBA hike, supporting AUD. While we remain bullish over the next one to two quarters, easing inflation should eventually shift the RBA away from restrictive policy and cap gains.