AUD/USD Rally Crumbles Amid Fed Hike Expectations and RBA Rate Risks
The Australian dollar's 10-week rally came to an end as hot US inflation data revived expectations of a Federal Reserve rate hike. The AUD/USD pair lost momentum after a strong US PPI report, which saw markets price in a 25bp Fed hike this week with an 87% probability.
Rising producer and consumer prices have added pressure on the Fed to tighten monetary policy, leaving little room for doubt about a September rate hike. The updated FOMC forecasts will be closely watched for clues on the likelihood of further hikes, with markets currently pricing in a 48% chance of a follow-up hike in March.
In Australia, concerns over RBA hikes are resurfacing, with business sentiment reports showing negative conditions and falling consumer confidence. This has led several major banks to bring forward their calls for a September rate hike, making it more likely that the RBA will raise interest rates next month.