The Australian dollar hovered around $0.711 on Friday, trading near its highest levels in more than three years and heading for a fourth straight monthly gain amid growing expectations of a more hawkish policy stance. The currency is poised to advance about 2% in February and is up over 6% so far this year, making it the best-performing G10 currency as resilient domestic conditions reinforce bets on further tightening by the Reserve Bank.
Money markets are pricing in roughly an 80% probability of a rate hike in May after January inflation surprised to the upside, and are factoring in about 40 basis points of additional tightening over 2024. Even so, many economists expect the cash rate to peak near 4.10%, broadly in line with the highs reached during the post-pandemic inflation cycle.
Governor Michele Bullock has reiterated that a patient approach remains appropriate with the economy close to balance, which has tempered expectations for an aggressive hiking trajectory. Investors now turn their attention to next week’s final manufacturing PMI and GDP releases for clearer indications of the economy’s growth momentum.
