The Australian dollar held near $0.71, struggling to extend its rebound from a recent four-week low as a stronger US dollar offset expectations of a Reserve Bank of Australia rate hike next week, which markets have largely priced in.
RBA Governor Michele Bullock warned that upside risks to inflation may be emerging, citing persistently elevated energy costs and ongoing excess demand in the domestic economy. Earlier, Assistant Governor Sarah Hunter reiterated that interest rates may need to rise for a fourth time this year to contain price pressures.
Money markets are now assigning a 95% probability to a 25 basis point increase to 4.60% on September 29, with the cash rate expected to peak around 4.85% early next year.
At the same time, the US dollar remains supported, as recent comments from Federal Reserve officials following the latest policy meeting have signaled that further rate hikes are possible if inflation fails to moderate.
Elsewhere, investors are closely watching the upcoming US–China summit for indications of progress on trade, which could bolster the Australian dollar given Australia’s strong economic and trade links with China.
