AUD/USD Caught Between RBA and Fed Hike Bets
The Australian dollar's eight-week winning streak was snapped after Fed Chair Kevin Warsh's hawkish Jackson Hole speech revived US rate-hike bets, leading to a stronger US dollar.
However, recent data on Australian inflation and household spending has also raised expectations of another Reserve Bank of Australia (RBA) hike, leaving the AUD/USD exchange rate caught between competing policy risks ahead of key economic releases in Australia and the United States.
Australia's Q2 GDP report on Wednesday is expected to show strong growth, which would add to the case that demand remains too resilient, particularly after hot inflation and household spending data revived expectations of another RBA hike. The RBA-Fed cash rate spread would narrow significantly if the RBA hikes once and the Fed twice.
A resilient US nonfarm payrolls report on Friday could strengthen Fed hike bets and the US dollar, while a soft or negative print would test the market's newly hawkish interpretation and potentially support AUD/USD. Meanwhile, options traders do not seem overly concerned about a deep pullback in the Australian dollar.