Aussie Surges as Rate Hike Bets Push Yields to New Highs
The Australian dollar is hovering near multi-month highs against the greenback and euro as investors anticipate further rate hikes by the Reserve Bank of Australia. Assistant Governor Sarah Hunter emphasized that the policy board has little tolerance for stronger inflation, which may lead to a fourth rate increase this year.
Markets now imply a 68% probability of a 25 basis point rate hike to 4.60% on September 29, up from less than 10% a month ago. There's even a 60% chance rates will reach 4.85% next year.
Luci Ellis, chief economist at Westpac, said that 'the likelihood of an additional rate hike has risen enough to make a November move the base case again.' The hawkish shift has pushed yields on 10-year bonds to near their highest since mid-2011, taking the spread over Treasuries to its widest in three months.
The Aussie's strength is also reflected in its performance against other currencies. It reached a fresh 13-year high against the kiwi dollar and extended its recent rise against the euro, which slipped to a near two-year low of A$1.6085.