AUD/USD Rally Falters as Fed and RBA Risks Build
The Australian dollar's 10-week rally has stalled as hot US inflation data revived expectations of a Federal Reserve rate hike. The latest producer price index (PPI) report, which showed a sharp rise in prices, has increased the likelihood of a 25-basis-point hike to an 87% probability.
Rising crude oil prices have also complicated the inflation outlook, leaving little reason for the Fed not to hike at this stage. The Reserve Bank of Australia (RBA) officials are keeping September tightening risks alive, adding to the uncertainty surrounding the AUD/USD pair.
The RBA's hawkish stance is reflected in business sentiment reports, which show a decline in confidence and an increase in expectations of rate hikes. This has led several major banks to bring forward their calls for a September hike, with some economists predicting that the RBA will raise rates as soon as 29 September.
The Federal Reserve's updated forecasts and dot plot will take center stage at the upcoming FOMC meeting, with markets pricing an 87% chance of a 25-basis-point hike this week. The median rate projections for 2026-2027 will be closely watched, particularly with economists still cautious about how far tightening goes this year.