AUD Strengthens as RBA Hike Bets Surge to 76%

The Australian dollar has gained strength in recent days due to improved economic data and rising expectations of an upcoming interest rate hike by the Reserve Bank of Australia (RBA). The probability of a September 29 RBA rate hike has surged to 76%, up from less than 10% in late August, according to cash rate futures.

The improvement in local economic data is evident in Citi's Economic Surprise Index, which has flipped positive and sits at +10.1. This index measures how economic data prints relative to median economists' forecasts and has seen a dramatic turnaround from its low point in July.

Australia is not alone in seeing a sharp improvement in economic data relative to expectations, but the RBA's repricing stands out due to what may be 'the right' reasons for hiking interest rates. Demand remains robust, adding to inflationary pressure generated by energy price spikes caused by disruptions in the Gulf.

The Aussie dollar has benefited from recent strength in metals prices and a run of stronger-than-expected economic data, helping expectations for an RBA rate hike build sharply. This has seen it outperform against European crosses, pushing EUR/AUD and GBP/AUD towards range lows.