Australian Dollar Takes Hit as Oil Prices Surge and Rate Hike Fears Rise

The Australian dollar suffered a setback on Friday as oil prices surged, pushing risk assets down and convincing investors that more rate hikes were inevitable globally.

Fears of higher-for-longer inflation led markets to price in a 90% chance the Reserve Bank of Australia would lift rates later this month, causing bond yields to spike to 15-year peaks.

Citi's head of Australian economics, Josh Williamson, said that 'the RBA needs to hike further to get on the front foot of inflation,' and now expects two more hikes this year, lifting their terminal rate forecast to 4.85%.

Bond markets reacted sharply, with three-year yields jumping 18 basis points to 5.050%, while 10-year yields climbed to 5.256%, their highest levels since mid-2011.