The Australian Dollar (AUD) strengthened for the second consecutive day, with AUD/USD trading around 0.7120 during Asian hours on Friday, following hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock at a parliamentary hearing. Bullock emphasized that the central bank's inflation concerns have materialized, suggesting the possibility of another interest rate increase. This has reinforced market expectations for a fourth RBA rate hike this year at the late-September meeting [1].
Deputy Governor Andrew Hauser reiterated the Board's commitment to its inflation target, while analysts at UBS now forecast two additional rate hikes, which would bring the terminal rate to 4.85% [1]. However, strategists at UOB Group maintain a bearish medium-term outlook for the AUD, noting that after the currency pair broke below 0.7120 and fell to 0.7109, they expect further weakness, with a potential drop to 0.7050 unless the pair breaches the 0.7140 resistance level [1].
On the US side, the Federal Reserve raised interest rates by a quarter-point on Wednesday, marking its first hike since 2023. Fed Chair Kevin Warsh stated that inflation remains elevated, and recent data has not shown meaningful improvement. Following these developments, the CME FedWatch tool indicates that traders are now pricing in a 53.1% probability of another US rate hike at the Fed's October meeting, up from 44% the previous day [1].
Overall, the AUD's recent appreciation is driven by expectations of further RBA tightening, but analysts remain divided on the currency's medium-term trajectory, with some anticipating further downside unless key resistance levels are reclaimed [1].
CONCLUSION
The Australian Dollar's recent gains are fueled by hawkish RBA commentary and rising expectations for additional rate hikes. However, analyst opinions remain mixed, with some forecasting further weakness unless the AUD/USD pair can break above resistance. Market sentiment is cautiously optimistic but tempered by ongoing inflation concerns and global central bank actions.