AUD Surge: Rate Hike Expectations Soar as Aussie Data Strengthens

Australian economic data has been surprisingly strong in recent weeks, with a string of upside surprises lifting expectations for an RBA rate hike on September 29. The implied probability from cash rate futures has jumped to 76%, up sharply from less than 10% in late August.

The improvement in the local data pulse is demonstrated by Citi's Economic Surprise Index, which has flipped positive and surged 100.9 points in just 44 trading sessions - the largest increase over an equivalent period seen across the past five years.

While Australia is not alone in seeing a sharp improvement in economic data relative to expectations, what makes the RBA repricing different is that it may be hiking for the 'right' reasons. Demand is still robust, adding to inflationary pressure being generated by the energy price spike caused by disruptions in the Gulf.

AUD/USD remains very much a US rates and risk appetite show, with strong inverse relationships between the Aussie and front and longer-dated US yields. The pair will be closely watched ahead of upcoming releases including ISM Services PMI and August nonfarm payrolls on Friday.