AUD/USD Rally Ends as US Inflation Data Revives Fed Hike Expectations

The Australian dollar's 10-week rally against the US dollar has stalled following hot US inflation data that revived expectations of a Federal Reserve interest rate hike. The US producer and consumer prices rose, with markets repricing a 25bp Fed hike to an 87% probability.

Rising crude oil prices have further complicated the inflation outlook, making it more likely that the Fed will raise rates this week. Meanwhile, concerns over Reserve Bank of Australia (RBA) hikes are resurfacing in business sentiment reports for Australia, with negative conditions and a three-month low confidence reading.

The RBA has opportunities to reinforce its hawkish message in upcoming events, including Monday's fireside chat and Friday's testimony before the House of Representatives. If officials remain hawkish and avoid pushing back against current pricing, more economists may be forced to bring their calls for a September hike forward.