Aussie Dollar Gains Strength Against EUR/AUD and GBP/AUD
The Australian dollar is gaining strength against European currencies due to a likely RBA hawkish hold and higher energy prices. The Reserve Bank of Australia (RBA) has overestimated inflationary pressures and underestimated unemployment, leading to a potential delay in interest rate hikes.
Markets still favor one more hike this cycle, but the timing is uncertain. The risk of tightening is still present, with 82% chance of another hike by February next year.
The RBA's updated forecasts for GDP growth, unemployment, and inflation may not differ significantly from their previous projections. However, household spending could be upgraded due to resilient data in discretionary areas.
On the other hand, the housing market has weakened, potentially becoming a larger drag on household demand. The Aussie dollar is expected to remain underpinned by hawkish rate expectations and positive terms-of-trade shock from energy exports.