The Australian dollar climbed toward $0.72, extending its rally to a new three-month high amid mounting expectations of an interest rate hike as early as next month. The shift in rate expectations followed a hotter‑than‑anticipated July inflation report, which showed that price pressures remain elevated and prompted several major banks to upgrade their forecasts for the Reserve Bank of Australia (RBA).
National Australia Bank now projects the RBA will lift its cash rate to 4.6% at its September 28–29 meeting. Commonwealth Bank and ANZ, meanwhile, expect the next increase to come in November, though both highlight the risk of an earlier move.
Money markets are now assigning roughly a 50% probability to a September rate hike, up sharply from about 17% before the inflation release, while a November increase is fully priced in. The RBA left its cash rate unchanged at 4.35% in August after three hikes earlier this year, but policymakers have repeatedly warned they are prepared to tighten further if inflation risks intensify.
Attention now turns to next week’s Q2 GDP figures and upcoming labor market data for additional signals on the future path of monetary policy.
