RBA Governor Bullock warned that persistent inflation may force another interest rate hike in September. UBS projects two additional Australian rate hikes, forecasting a terminal interest rate of 4.85%. Traders are pricing in an October Fed rate hike probability of 53.1%. AUD/USD extends its gains for the second successive day, trading around 0.7120 during the Asian hours on Friday. The currency pair is appreciating as the Australian Dollar strengthens following hawkish comments from Reserve Bank of Australia Governor Michele Bullock. Speaking at a parliamentary hearing on Friday, Bullock highlighted that the central bank’s inflation concerns have materialized, potentially forcing another interest rate increase. Her statements reinforced market expectations for a fourth rate hike this year at the RBA’s late-September meeting.
Deputy Governor Andrew Hauser affirmed the Board’s total commitment to its inflation target, while analysts at UBS now project two additional hikes, bringing the terminal rate to 4.85%. However, strategists at UOB Group maintain a bearish medium-term bias on the Aussie, noting that they “turned negative on AUD last Friday (11 Sep, spot at 0.7160)” and initially flagged that the currency “could decline toward 0.7120.” They point out that after AUD/USD broke below 0.7120 and fell to 0.7109, they cautioned on 15 September that “while further weakness is not ruled out, short-term conditions are oversold, and AUD must close below 0.7100 before a move to 0.7050 can be expected.” With the pair having “broken below 0.7100 and closed at 0.7087 (-0.64%)” yesterday, UOB now “expects AUD to drop to 0.7050,” adding that “only a breach of 0.7140 (‘strong resistance’ level previously at 0.7175) would mean that AUD is stabilising.”
The US Federal Reserve raised interest rates by a quarter-point on Wednesday, marking its first rate hike since 2023. Federal Reserve Chair Kevin Warsh stated that inflation remains too high for too long, noting that recent summer readings fail to show meaningful improvement in underlying trends. Following these remarks, the CME FedWatch tool indicates that traders are now pricing in a 53.1% probability of another US rate hike at the Fed’s upcoming October meeting, up from 44% a day earlier.
