AUD Strengthens on RBA Rate Hike Bets

The Australian Dollar is gaining strength due to the release of the August RBA minutes and stronger-than-expected monthly CPI, according to MUFG. The data suggests that the Reserve Bank of Australia (RBA) may be closer to raising interest rates than markets currently imply.

Although a full rate hike in Australia is not priced until February 2027, the minutes from the August RBA meeting indicate a higher risk of another hike sooner. This view is supported by the latest monthly CPI data, which shows that trimmed mean inflation remained unchanged at 3.6% YoY.

The focus of the RBA will likely remain on controlling inflation, and the persistence of high inflation rates supports the Australian Dollar. However, MUFG warns that the currency may be starting to look stretched, indicating potential risks in its continued strength.