Aussie Dollar Reaches Near-Highs Amid Rate Hike Expectations

The Australian dollar has reached near multi-month highs against both the US greenback and euro as investors bet on further interest rate hikes by the Reserve Bank of Australia.

Reserve Bank Assistant Governor Sarah Hunter stated that the policy board has little tolerance for inflation, implying a possible fourth rate hike this year. Markets now suggest a 68% probability of a 25 basis point increase to 4.60% at the September 29 meeting.

Westpac chief economist Luci Ellis predicted an additional rate hike is now the base case again due to resilient household data and increased impetus from the data centre boom.

The hawkish shift has pushed yields on 10-year bonds to their highest since mid-2011, resulting in a wider spread over Treasuries. The Aussie dollar remains firm at $0.7217, with its next major targets being the May peak of $0.7277 and the high from mid-2022 of $0.7285.