RBA Hawkish Stance Supports Aussie Amid US Inflation Jitters

The Australian and New Zealand dollars traded flat on Wednesday as investors awaited key inflation data from the US. The Reserve Bank of Australia's (RBA) hawkish stance provided support for the Aussie, with Governor Michele Bullock hinting at a possible rate hike if inflation doesn't meet expectations.

Markets are pricing around a 50% chance of a Federal Reserve rate hike in September and a similar probability of further RBA tightening in November. The RBA left interest rates unchanged at 4.35% on Tuesday but emphasized the importance of upcoming consumer price figures, due out in late October.

Belinda Allen, head of Australian economics at CBA, noted that RBA forecasts point to a run rate of 0.84%, 0.81%, 0.72%, and 0.64% in the year from Q3. A higher-than-expected core US consumer price index reading could strengthen the case for a Federal Reserve rate hike and boost the US dollar, while a softer outcome would likely have the opposite effect.

The Aussie held firm at $0.7062 after edging 0.1% higher in the previous session. A break of resistance in the $0.7078/88 band could open up to $0.7200, while support lies at $0.7022 and $0.6923.