Australian Dollar Hits Three-Month High as RBA Rate Hike Bets Intensify
AUD/USD advances on Monday, gaining 0.22% on the day to trade around 0.7220 at the time of writing, after reaching its highest level in more than three months. The Australian Dollar continues its strong run as markets increasingly price in the possibility of another rate hike from the Reserve Bank of Australia (RBA) at its upcoming policy meeting.
The pair has now gained over 4% from its August lows, driven by a combination of hawkish RBA expectations, resilient Australian economic data, and broad-based US Dollar weakness as markets anticipate the Federal Reserve's next move. Traders are now pricing in a 65% probability of a 25bps rate hike by the RBA in October, up from just 30% a month ago.
• AUD/USD: 0.7220 (+0.22%) — 3-Month High
• RBA Rate Hike Probability (Oct): 65% (up from 30% last month)
• Australia CPI (YoY): 4.2% (above RBA target)
• Australia Unemployment: 3.8% (near 50-year low)
What's driving the AUD rally? Several factors are converging to support the Australian Dollar. First, domestic inflation remains sticky, with the latest CPI reading coming in at 4.2% year-over-year — well above the RBA's 2-3% target band. Second, the labor market continues to show remarkable strength, with unemployment holding near 3.8%, a level not seen in five decades. Third, China's recent stimulus measures are boosting demand for Australian commodity exports, particularly iron ore and coal.
| Factor | Current Status | Impact on AUD/USD |
|---|---|---|
| RBA Policy Outlook | Hawkish (65% chance of Oct hike) | ⬆️ Bullish for AUD |
| Australia CPI | 4.2% (above target) | ⬆️ Supports rate hike case |
| Australia Unemployment | 3.8% (near 50-year low) | ⬆️ Bullish for AUD |
| China Stimulus | Supporting commodity demand | ⬆️ Positive for AUD (commodity currency) |
| Fed Policy Outlook | Dovish pivot expectations | ⬆️ Weakens USD, supports AUD |
| Iron Ore Prices | Up 8% in September | ⬆️ Supports AUD |
Technical Outlook for AUD/USD: The pair has broken above key resistance at 0.7200, opening the door for a move toward 0.7300 and potentially 0.7350 in the coming weeks. Support now sits at 0.7150 and 0.7100. The RSI is approaching overbought territory at 68, suggesting some consolidation may be due before the next leg higher.
What to Watch: RBA Governor's upcoming speech, Australian employment data due later this week, and any comments from Fed officials that could shift the USD outlook. Also, watch for China's trade data, which could impact commodity prices and, by extension, the AUD.
Key Levels to Monitor:
• Resistance: 0.7250, 0.7300, 0.7350
• Support: 0.7150, 0.7100, 0.7050