AUD Consolidates as RBA Tightening Expectations Underpin Currency

[AUD Consolidates as RBA Tightening Expectations Underpin Currency]

1. The Australian dollar traded steadily on Monday, hovering around 0.7122 after two consecutive weeks of declines. A more hawkish outlook for U.S. interest rates has cooled the AUD's recent rally; however, with another rate hike in Australia nearly a certainty, the currency remains near multi-year highs against the New Zealand dollar and the euro.

2. The AUD has pulled back from its four-month high of 0.7238, with support seen near 0.7075. Markets expect the Reserve Bank of Australia to hike rates to 4.6% next week, with the AUD/NZD pair at 1.2454 NZD, hovering near 13-year highs, and the AUD/EUR pair at 1.6106 AUD, close to 22-month highs.

3. Commonwealth Bank of Australia and ANZ Bank adjusted their rate forecasts on Monday, expecting the RBA to hike next Tuesday. This brings all four major Australian banks to anticipate a rate increase next week. ANZ also projects rates will rise further to 4.85% in November.

4. Adam Boyton, Head of Australian Economics Research at ANZ, noted that over the past week, the RBA has had multiple opportunities to temper market expectations for near-term hikes through public communication but has so far chosen not to do so. He believes it seems unlikely that central bank officials' remarks tomorrow will significantly reduce the probability of a September hike. Governor Bullock is scheduled to speak on Tuesday, board member Iain Ross will deliver a speech that evening, and Assistant Governor Hunter is set to participate in a podcast interview on Tuesday morning.