Australian Dollar Slumps as Hawkish Tone Emerges

The Australian dollar's rally finally faltered last week due to stronger US inflation data, rising crude oil prices, and a firmer US dollar. The AUD/USD is now looking at key events ahead of next week's Reserve Bank of Australia (RBA) decision.

RBA Governor Bullock struck a hawkish tone in her recent speech, warning that inflation risks are materializing through various cost pressures. She emphasized the need for demand to cool and productivity to improve, keeping the door open to another hike. The RBA's modelling came under scrutiny after officials admitted they hadn't run a scenario considering a large cut in government spending.

The US Federal Reserve delivered its expected rate hike but signaled another move by December without endorsing additional hikes as markets had priced in. The AUD/USD could see a modest bounce before another leg lower, but any recovery may be limited at this stage.