The Australian Dollar (AUD) is maintaining its position above the 0.7200 level against the US Dollar, despite recent softening in consumer and business sentiment in September and August, respectively [1]. Brown Brothers Harriman’s Elias Haddad notes that inflation remains the primary concern for the Reserve Bank of Australia (RBA), with Assistant Governor (Economic) Sarah Hunter warning that the Board may need to raise interest rates if inflation proves stronger than forecasted [1].
Australia's trimmed mean Consumer Price Index (CPI) stood at 3.6% year-on-year in July, surpassing the RBA’s year-end forecast of 3.3% [1]. Additionally, real GDP growth reached 2.1% year-on-year in Q2, exceeding the RBA’s projection of 1.9% [1]. These robust data points underpin market expectations for a 25 basis point rate hike to 4.60% on September 29, with a 70% probability priced in [1]. However, the RBA may opt to delay the decision until November 3 to review additional CPI data from August and Q3, which will be released on September 30 and October 28, respectively [1].
Beyond monetary policy, Australia’s attractive carry and strategic commodity exposure—particularly in sectors linked to energy, artificial intelligence, and defense—continue to provide tailwinds for the AUD [1].
CONCLUSION
The Australian Dollar remains supported by persistent inflation and stronger-than-expected GDP growth, fueling speculation of a near-term rate hike by the RBA. While market participants are pricing in a 25bps increase, the central bank may wait for further inflation data before making a decision. Overall, Australia’s favorable carry and commodity exposure bolster the AUD’s outlook.