The Australian dollar extended its recent decline below $0.72, hovering near its lowest level in more than a week and heading for a weekly loss as the US dollar strengthened alongside a sharp rise in US Treasury yields. The greenback advanced after US producer price inflation surprised to the upside, reinforcing expectations that the Federal Reserve could raise interest rates next week.
The jump in Treasury yields was further supported by weaker-than-expected demand at the US Treasury Department’s first expanded buyback operation, which also bolstered the dollar. At the same time, oil prices continued to trade above $100 per barrel amid escalating tensions in the Middle East, heightening inflation risks and fuelling expectations that central banks may keep monetary policy tighter for longer.
In Australia, markets increased their wagers on a fourth interest rate hike this year by the Reserve Bank of Australia, with interest rate swaps now pricing in an 84% probability of a 25-basis-point increase at this month’s meeting. Markets also anticipate that the cash rate will reach 4.85% by early next year, which would mark its highest level since 2008.
