AUD/USD Caught in Rate Hike Crossfire Between RBA and Fed

The Australian dollar's eight-week winning streak was snapped after Fed Chair Kevin Warsh delivered a hawkish speech at Jackson Hole, reviving US rate-hike bets. However, stronger inflation and household spending data have also raised expectations of another Reserve Bank of Australia (RBA) hike, leaving the AUD/USD pair caught between competing policy risks.

The RBA's decision to raise interest rates is expected to narrow the cash rate spread with the Federal Reserve, which could lead to a more significant impact on AUD/USD. According to Fed funds futures, there's a 60% chance of a September hike and a 50% chance of another in December, rising to 85% for a second hike by March.

Australia's Q2 GDP report is due out this week, which could add to the case that demand remains too resilient. Stronger growth would likely revive expectations of another RBA hike, while weaker data could test the market's newly hawkish interpretation of Warsh's speech.