AUD/USD Rally Halted by US Inflation Fears and RBA Rate Hike Expectations

The Australian dollar's 10-week rally has stalled as hot US inflation data revived expectations of a Federal Reserve rate hike. The US Producer Price Index (PPI) report, which showed a sharp increase in prices, added to pressure on the Fed to raise interest rates.

Rising crude oil prices have further complicated the inflation outlook, with markets repricing a 25bp Fed hike this week to an 87% probability. This has sparked concerns that the Reserve Bank of Australia (RBA) may also increase interest rates, potentially as soon as September 29.

Business sentiment in Australia is also turning negative, with NAB reporting a decline in business conditions and Westpac noting a fall in consumer confidence. While this may not deter the RBA from hiking rates, it suggests that economic data will be closely watched ahead of the September meeting.