FX.co ★ Australian Dollar Holds Near 16-Month High

The Australian dollar maintained its upward trajectory, hovering around $0.684 and nearing a sixteen-month peak, driven by robust employment figures and bolstered expectations for an imminent interest rate hike. Positive PMI data have further enhanced market sentiment. Preliminary reports indicated a rise in the composite PMI to 55.5 in January, marking sixteen consecutive months of growth and representing the highest point since April 2022. This uptick was fueled by accelerated growth in both key sectors, with manufacturing activity expanding for the third straight month and the services PMI experiencing its most significant increase since early 2022. In tandem, recent statistics revealed an unexpected drop in the unemployment rate in December, reaching a seven-month low. Coupled with persistent inflation and increasingly hawkish signals from the Reserve Bank, this has intensified speculation regarding potential rate hikes. Current swaps reflect a 55.7% probability of a rate hike in February, an increase from 26.5% prior to the data release, with over an 80% likelihood of an increase by May. Attention is now directed towards the upcoming quarterly inflation data, the central bank’s preferred price growth metric.