FX.co ★ Australian Dollar Gains on Bullock’s Remarks

The Australian dollar climbed to around $0.71 on Tuesday, recovering part of the previous session’s losses as markets increasingly priced in the likelihood of a Reserve Bank of Australia cash rate hike. RBA Governor Michele Bullock indicated that the central bank’s March policy meeting would be “live” for a possible rate increase, marking a shift from her recent emphasis on patience. She also cautioned that an oil price shock arising from tensions involving Iran could reignite domestic inflationary pressures, pointing out that the latest clashes between Iran and the US highlight how quickly global conditions can change. Current market pricing implies about a 28% probability of a 25 bp rate rise, while fully discounting a tightening move by May. Markets are also assigning roughly a 75% chance of a further increase to 4.35% by year-end. In addition, the Australian dollar benefited from an unusual bout of haven demand, with the country’s energy wealth helping to offset the impact of higher oil prices.