Aussie Dollar Strengthens as Hawkish RBA Bets Build

The recent Australian inflation report showed that headline inflation rose 1.0% for the month of July, leaving the annual rate at 3.5%, which is above market expectations. The trimmed mean inflation rate, preferred by the RBA, increased to 3.6%, more than a full percentage point above the RBA's 2.5% midpoint target.

This has led to an increase in bets for a rate hike by the Reserve Bank of Australia (RBA), with market pricing now close to 98% that there will be a move by November, and nearly a 50-50 bet on a hike in September.

The strong household spending data released on Thursday further supports this view, with nominal spending rising 1.1% for the month versus 0.4% expected. This has added to upside inflation risks given Australia's weak productivity growth.

The Aussie dollar is benefiting from these developments, breaking key levels against major crosses such as the euro, British pound and Kiwi. The EUR/AUD pair broke beneath support at 1.6260, while the GBP/AUD slipped below 1.8950. Meanwhile, AUD/NZD cleared a falling wedge structure.