AUD Rises as RBA Rate Hike Odds Climb

The Australian dollar rose against the US dollar for a fourth straight session during Friday's Asian trading, trading around 0.72011. The rally was driven by a sharp increase in expectations for Reserve Bank of Australia rate hikes, following an unexpected rise in July's core inflation data, with the trimmed mean up 3.6% year-on-year, beating economists' forecasts of 3.5% and highlighting persistent price pressures in the economy, providing grounds for further monetary policy tightening.

**Inflation Beats Expectations, Fueling Rate Hike Bets**

Following the inflation data release, markets quickly repriced the RBA's policy path. According to Bloomberg, traders now see a roughly 78% probability of another rate hike by December, up from around 67% prior to the data. This shift in expectations provided strong support for the Australian dollar, pushing it higher. Analysts noted that inflation running above the midpoint of the RBA's 2-3% target range, at levels not seen in nearly five years, intensifies pressure on policymakers to act.

**Policy Shift Underway**

The RBA's stance has clearly pivoted from earlier easing to a focus on inflation management. Looking back, the bank cut rates multiple times in 2025, but has now delivered two consecutive 25-basis-point hikes since early 2026, lifting the cash rate to 4.1%. Reports indicate that at its most recent meeting, the board voted 5-4 in favor of raising rates, revealing internal divisions. The upcoming meeting in late September will be a key juncture, with the central bank set to assess the latest inflation figures to determine whether further action is needed to curb price pressures.

**Risk Appetite Also Lends Support**

Beyond domestic rate expectations, the external environment has also been favorable for the Australian dollar. Improved global risk sentiment has benefited commodity-linked currencies like the Aussie. However, investors remain cautious, as any softening in economic data or a reversal in global risk appetite could test the currency's near-term gains.