AUD Tumbles as Warsh's Hawkish Tone Boosts USD Expectations

The Australian Dollar (AUD) retreated by 0.30% on Friday to trade around 0.7170, correcting after reaching its highest level since mid-May at 0.7206 earlier in the day.

The AUD lost ground against the US Dollar (USD), which saw renewed demand following hawkish comments from Federal Reserve Chair Kevin Warsh.

Warsh stressed that price stability must remain the US central bank's predominant focus, and warned that policymakers need to be confident that underlying inflation is moving toward the Fed's objective. He acknowledged that data released during the summer have been better than expected but said they are not sufficient to demonstrate a meaningful shift in underlying price dynamics.

The Fed Chair reiterated that the Fed's 2% Personal Consumption Expenditures (PCE) inflation target remains 'firm and fixed.'

Warsh's hawkish tone triggered a significant repricing of monetary policy expectations, with markets now assigning around a 60% chance to an interest-rate hike at the Fed's September meeting, up from roughly 36% before Warsh's speech.