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Australian Dollar Dips as Hot US Inflation Data Boosts Fed Rate Hike Expectations
Confirmed
In Short: Financial markets now price an 86.2% chance of a quarter-point rate hike at the Fed's September meeting, up from 72% before the latest inflation data.
Financial markets have adjusted their expectations, now pricing an 86.2% chance of a quarter-point rate hike at the Fed's September meeting, up from 72% before the latest inflation data, according to CME's FedWatch tool.
RBA Assistant Governor Sarah Hunter warned that the central bank may need to raise interest rates again if inflation proves more persistent than expected, keeping the possibility of another hike at the September meeting alive.
The Australian Dollar has declined to near 0.7150, holding above the 100-day moving average and the lower Bollinger Band, suggesting a constructive near-term tone, while price tests the area just under the middle Bollinger band.
Stronger-than-expected US inflation reports support the US Dollar against the Australian Dollar, with all eyes on the US Federal Reserve's interest rate decision on Wednesday.
Pantheon Macroeconomics economists Robert Wood and Elliott Jordan-Doak are reiterating their call for Bank Rate to remain on hold until the end of 2027, arguing that recent data has not fundamentally altered the Monetary Policy Committee's preference to wait.
What's confirmed
- Financial markets have adjusted their expectations, now pricing an 86.2% chance of a quarter-point rate hike at the Fed's September meeting, up from 72% before the latest inflation data, according to CME's FedWatch tool.
- RBA Assistant Governor Sarah Hunter warned that the central bank may need to raise interest rates again if inflation proves more persistent than expected, keeping the possibility of another hike at the September meeting alive.
- The Australian Dollar has declined to near 0.7150, holding above the 100-day moving average and the lower Bollinger Band, suggesting a constructive near-term tone, while price tests the area just under the middle Bollinger band.
- Stronger-than-expected US inflation reports support the US Dollar against the Australian Dollar, with all eyes on the US Federal Reserve's interest rate decision on Wednesday.
- Pantheon Macroeconomics economists Robert Wood and Elliott Jordan-Doak are reiterating their call for Bank Rate to remain on hold until the end of 2027, arguing that recent data has not fundamentally altered the Monetary Policy Committee's preference to wait.
What's still developing
- On the topside, immediate resistance emerges at the middle Bollinger band at 0.7170, followed by the upper band near 0.7235, where upside attempts could begin to stall.
- Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination.
- The CPI inflation data followed strong readings in several components of the Producer Price Index (PPI) released on Thursday, raising the specter of a Fed interest rate hike next week and supporting the Greenback.
- “A higher inflation peak and solid growth mean greater risk of a rate hike; this November, if it comes,” they said.
- “All told, the bulk of the data suggest that economic activity will continue to outperform the MPC's expectations in H2,” Pantheon said.
- Our currency coverage draws on live market data, official economic releases and published bank research.
- Pound Sterling ended August with a mixed performance, holding broadly flat against the Euro but losing ground against the Australian and Canadian Dollars while remaining modestly higher against the US Dollar.
- That leaves the Pound with an unusual rates story: an economy performing better than the BoE expected, inflation moving higher again, but policymakers still reluctant to tighten.