AUD/USD Rally Ends as Fed Rate Hike Expectations Rise

The AUD/USD exchange rate stalled its 10-week rally due to renewed expectations of a US Federal Reserve interest rate hike, as well as concerns about a potential Australian RBA tightening in September.

A hot US producer price index (PPI) report on Thursday added pressure on the Fed to increase interest rates, with markets now pricing an 87% chance of a 25bp hike this week.

Rising crude oil prices further complicated the inflation outlook, leaving little reason for the Fed not to hike at this stage. The updated FOMC forecasts will be closely watched for clues on the likelihood of a follow-up hike in March, with markets currently pricing it at around 48%.