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Australian Dollar Rises as RBA Chief's Hawkish Tone Boosts Rate Hike Odds
Summary
The Australian dollar gained against the U.S. dollar after RBA Governor Michele Bullock's hawkish remarks on inflation risks sent market expectations for a near-term interest rate hike soaring.
The Australian dollar gained 0.3% against its U.S. counterpart on Friday, trading at 0.7129, after hawkish commentary from Reserve Bank of Australia (RBA) Governor Michele Bullock dramatically shifted interest rate expectations.
RBA Signals Inflation Concerns
Speaking before a parliamentary committee, Governor Bullock stated that upside inflation risks previously flagged by the central bank in August were now actively materializing. She attributed the mounting price pressures to several factors, including rising Middle East oil prices, a global investment boom in artificial intelligence, and the impact of extreme weather events.
Bullock's pointed testimony triggered a significant repricing in financial markets. According to the source, market-implied odds of an RBA rate hike at its next meeting on September 29 surged to 93%. The expected terminal rate is now forecast to reach 4.85% by early 2027.
Market Repricing and Analyst Upgrades
The shift in central bank tone prompted immediate revisions from market analysts. Reinforcing the hawkish sentiment, investment bank UBS updated its forecast, now anticipating two additional RBA rate increases to a terminal rate of 4.85% in response to the governor's remarks.
AdKey takeaways from the session include:
- The Australian dollar rose 0.3% to trade at 0.7129 against the U.S. dollar.
- Market odds for a September RBA rate hike jumped to 93%.
- The expected peak for the RBA's cash rate is now seen at 4.85%.
U.S. Dollar Softness Adds Support
The Aussie's advance was further supported by a modest softening in the U.S. dollar. The greenback's retreat was linked to an easing in U.S. Treasury yields, which pulled back following a rally after the Federal Reserve's recent meeting.
However, potential losses for the U.S. dollar were limited by the Fed's own hawkish stance. The source noted that comments from Fed Chair Kevin Warsh, who flagged the possibility of further rate hikes, helped establish a floor under the greenback.
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