AUD Strength Endures Amid RBA Rate Hike Expectations

The Australian Dollar (AUD) has maintained its strength in recent days, despite weak capital expenditure data. The AUD/USD pair has extended its gains for three consecutive days and is currently trading around 0.7180.

This resilience can be attributed to the growing expectations of an upcoming interest rate hike by the Reserve Bank of Australia (RBA). The hot July inflation report, which showed a higher-than-expected reading, has forced major banks to revise their RBA rate path forecasts upward. National Australia Bank now anticipates a rate increase to 4.6% at the September meeting.

Although the RBA held its cash rate steady at 4.35% in August, policymakers warned that further monetary tightening remains on the table if inflationary risks escalate. The Westpac, Melbourne Institute Leading Index also showed a modest improvement in July, with the six-month annualised growth rate rising to -0.2% from -0.4% in June.

However, upside potential for the AUD/USD pair may be capped by the steady performance of the US Dollar (USD). Stronger-than-expected US economic data has reinforced market expectations that the Federal Reserve will implement another interest rate hike before the year concludes.