AUD Gives Back Gains as Dollar Steadies, RBA Rate Hike Bets Cool

The Australian dollar gave back some of its earlier gains against the US dollar during Friday's session, trading near 0.69411. Hawkish expectations for the Federal Reserve regained support after a brief pullback in the previous session, stabilizing the US dollar and Treasury yields, which weighed on the Aussie.

**"Sell-the-Fact" Move and Dollar Dominance**

Despite recent hawkish signals from the Reserve Bank of Australia (RBA), including the possibility of further rate hikes, the Aussie failed to sustain upward momentum. Market data showed that ahead of the rate decision, the probability of a hike priced in by markets had reached as high as 85% to 90%, with expectations fully digested. Once the decision was announced, it triggered profit-taking on existing long Aussie positions by institutions, forming a classic "buy-the-rumor, sell-the-fact" move. More importantly, the AUD/USD pair remains largely anchored to the US dollar index. Strong US economic resilience supports expectations that the Fed will maintain high rates, keeping overall demand for the dollar robust—a key external factor dragging the Aussie lower.

**Cooling Rate Hike Expectations and Market Repricing**

RBA Governor Bullock reiterated that the board will strictly rely on incoming economic data and does not rule out any policy possibilities. This stance briefly prompted money markets to push back bets on the timing of rate cuts. However, as the dollar stabilizes and global macro headwinds intertwine, markets have begun to doubt the sustainability of aggressive domestic rate hikes in Australia, leading to a cooling of hike bets. This marginal shift in expectations has weakened the Aussie's short-term upside momentum, causing the currency to quickly retreat after failing to break resistance at 0.7030 and fall below the psychological level of 0.7000.

**Near-Term Outlook Under Pressure**

Looking ahead, AUD/USD faces dual challenges. On one hand, the Fed's hawkish stance provides solid support for the dollar; on the other, market reassessment of the RBA's rate hike path could further unwind bullish pricing for the Aussie. Unless upcoming Australian inflation data shows an unexpected surge, forcing markets to re-ramp up rate hike bets, the Aussie is likely to remain under pressure against the dollar in the near term.