AUD/USD Caught Between RBA and Fed Rate Hikes
The Australian dollar (AUD) has snapped its eight-week winning streak after Federal Reserve Chairman Kevin Warsh's hawkish speech at Jackson Hole, which revived US rate-hike bets. This has left AUD/USD caught between competing policy risks ahead of the release of Australian GDP and US nonfarm payrolls.
Warsh described the Fed's 2% inflation objective as a 'firm, fixed target' and emphasized the need for policymakers to be confident that underlying inflation is moving towards it. As a result, Fed funds futures now imply around a 60% chance of a hike in September and 50% chance of another in December, rising to 85% for a second hike by March.
However, stronger Australian inflation and household spending have also raised expectations of another RBA hike, which could narrow the RBA-Fed cash rate spread to just 10bp. The outcome will depend on how markets perceive the relationship between the Fed's two hikes and the RBA's one.