Australian Dollar Holds Firm Amid Rate Hike Expectations

The Australian dollar has held firm near fresh highs as investors anticipate a rate hike by the Reserve Bank of Australia. Bond yields have reached six-month highs, with short-term bond yields rising to 4.905%, their highest level since mid-2011. Markets are pricing in an 80% chance of a rate rise later this month.

JPMorgan analysts say RBA commentary suggests the board has shifted into risk management mode, driven by the inflationary pulse from Brent oil above $101 a barrel. They expect a 25bp hike for the September meeting to 4.60% and even predict further moves to 4.85% by early next year.

The Australian dollar remains strong at $0.7220, having hit a four-month high of $0.7238 overnight. The next target is the May top of $0.7277, while markets are also pricing in a run toward the bear target around 5.30% if yields break through the current resistance.