Aussie Dollar Surges as Hawkish Bets on RBA Hike Build
Australia's inflation report has sparked a surge in hawkish bets on interest rate hikes from the Reserve Bank of Australia (RBA), sending the Aussie dollar soaring against major crosses.
The July inflation report revealed that headline inflation rose 1.0% for the month, leaving the annual rate at 3.5%, above market expectations. Underlying inflationary pressures are accelerating, with trimmed mean inflation up 0.5% for the month and unchanged at 3.6%, more than a full percentage point above the RBA's target.
Cash rate futures have priced in a significant risk of the cash rate rising to 4.60% in the months ahead, with September currently seen as a one-in-three chance for a hike and November approaching lock territory at over 80%. The repricing has fueled the Aussie dollar's rally against major crosses.
The next key event will be the release of July household spending data on Thursday, which is expected to show a decrease in demand. Any upside surprise would only add fuel to hawkish RBA bets.