RBA Hawkish Tone Sends Aussie Dollar Soaring Amid Widening Policy Gap

The Australian dollar strengthened after Reserve Bank of Australia (RBA) Governor Michele Bullock expressed concerns over inflation risks, which traders interpreted as a signal for a September rate hike. The RBA's policy gap with its New Zealand counterpart is widening, leading to a 1% rise in the AUD/NZD cross-rate.

Bullock's hawkish comments sparked market expectations of a 95% chance of a 25-basis-point increase to 4.60% later this month and further tightening by February. The RBA's rate hike is seen as attractive to global investors, pushing up the value of the Australian dollar.

Meanwhile, the Reserve Bank of New Zealand (RBNZ) has kept its policy rate at 2.75%, but investors only assign a 60% chance of an October 28th hike after recent guidance pointed to a slower path and softer-than-expected price data.