Australian Dollar Tumbles as Oil Prices Surge and Rate Hikes Loom

The Australian dollar took a hit on Friday as oil prices surged, causing investors to bet on more rate hikes globally. The Reserve Bank of Australia's (RBA) decision to raise interest rates later this month is now seen as inevitable by markets.

Citi's head of Australian economics, Josh Williamson, said the RBA needs to hike further to control inflation, which he believes requires two more hikes this year. This would lift the terminal rate forecast to 4.85% and push the first rate-cut forecast out to Q4 2027.

The bond market reacted sharply to these expectations, 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.