AUD Holds Firm on RBA Rate Hike Bets

The Australian dollar held firm against the US dollar during Thursday's Asian session, extending its recent bullish trend, with the pair trading around 0.71849. Earlier, the Aussie had climbed to 0.7176 following the release of key Australian inflation data, as market expectations for Reserve Bank of Australia (RBA) policy tightened significantly.

**Hotter Inflation Ignites Rate Hike Bets**

Data released earlier by the Australian Bureau of Statistics showed that the closely watched core inflation gauge—the trimmed mean CPI—rose 3.6% year-on-year in July, exceeding economists' forecasts of 3.5%, while the monthly pace accelerated from 0.3% to 0.5%. This stronger-than-expected inflation report rapidly fueled expectations of another RBA rate hike. According to reports, market pricing for a further rate increase by December jumped from approximately 67% to 78% following the data release. This has been viewed as the primary driver behind the Aussie's recent strength.

**Soft Capex Data Fails to Dent Bullish Sentiment**

Despite the release of weak Australian private capital expenditure data for the second quarter—which fell 3.6% quarter-on-quarter, significantly missing expectations for a flat reading—the Australian dollar was not materially pressured. The AUD/USD pair continued to consolidate near recent highs. This resilience suggests that market focus remains firmly locked on the interest rate outlook. Ahead of the RBA's next policy meeting in late September, the central bank's board had been considering another rate hike to curb upside price risks, and the latest inflation figures may have heightened the urgency for action.

**Market Outlook and Risks**

Whether the Australian dollar's strength can be sustained will largely depend on the tug-of-war between policy expectations at the RBA and the US Federal Reserve. Analysts suggest that if a clear divergence emerges in the policy stances of the two major central banks, the currency trend could prove more durable. Currently, elevated volatility also reflects significant market uncertainty surrounding the release of key data points.