The Australian Dollar (AUD) rose by 0.1% to approximately 0.7180 against the US Dollar (USD) during Thursday's European trading session, maintaining its firm stance throughout the week due to continued outperformance among major currencies [1]. The AUD was notably the strongest against the Swiss Franc, gaining 0.77% this week, and also posted gains against other major currencies such as the Canadian Dollar (0.73%), British Pound (0.62%), and Euro (0.54%) [1].
The primary driver behind the AUD's strength was the release of Australia's July Consumer Price Index (CPI) report, which showed headline inflation easing from 3.8% year-over-year (YoY) in June to 3.5% YoY in July, while trimmed mean inflation remained steady at 3.6% YoY. Both figures exceeded market expectations, with the Reserve Bank of Australia (RBA) targeting an average trimmed mean inflation rate of 3.3% YoY for the second half of 2026. July's reading was therefore seen as an unhelpful start to the period, reinforcing concerns about persistent inflation [1].
Following the inflation data, market pricing shifted significantly, with traders fully pricing in an additional 25 basis point RBA rate hike by February 2027, up from a 70% probability prior to the data release. This repricing supported the AUD/USD pair's retest of resistance in the 0.7180-0.7200 range [1].
Despite the market's hawkish expectations, strategists at OCBC Bank maintain a contrary view, stating, “Our base case remains that the RBA has reached the end of its tightening cycle” [1]. This divergence highlights ongoing uncertainty regarding the RBA's future policy moves.
CONCLUSION
The Australian Dollar's recent gains are underpinned by hotter-than-expected inflation data, which has led markets to fully price in another RBA rate hike by early 2027. However, some analysts, such as those at OCBC Bank, believe the RBA may have already concluded its tightening cycle. The market remains attentive to future inflation readings and RBA communications for further direction.