AUD/USD Rally Stalls Amid Rising Fed Rate Hike Expectations

The Australian dollar's 10-week rally against the US dollar has stalled due to rising expectations of a Federal Reserve rate hike. Hot US inflation data, specifically the producer price index (PPI) report, added pressure on the Fed to increase interest rates. The PPI rose 0.3% month-over-month, exceeding expectations. As a result, markets repriced a 25bp Fed hike this week to an 87% probability.

Rising crude oil prices have also complicated the inflation outlook. This development has made it more likely that the Reserve Bank of Australia (RBA) will keep September tightening risks alive. Both sides of the AUD/USD pair face significant event risk this week, with the US Federal Reserve meeting on Friday.