The Australian Dollar has strengthened, reaching its highest level since August 2022, fueled by hawkish comments from the RBA regarding persistent inflation and the potential for further rate hikes. Despite facing some headwinds from weaker-than-expected economic data in China, the Aussie remains resilient as investors await key economic data releases from both the US and Australia, which are expected to provide further insights into future monetary policy decisions.
- The Australian Dollar reached its highest level since August 2022, trading around $0.71.
- RBA Deputy Governor Andrew Hauser stated inflation remains too high and the RBA is prepared to tighten further if needed.
- Markets imply a 74% chance of a May rate increase to 4.1%, with 38 basis points of additional tightening priced in for the remainder of the year.
- Slower-than-expected consumer inflation and producer price deflation in China exerted some pressure on the Aussie.
- US Retail Sales stagnated in December, and labor costs data were softer, potentially influencing the Federal Reserve’s monetary policy.
- The US Nonfarm Payrolls report is expected to show a 70K increase in net jobs.
- Investors are also awaiting Australian Consumer Inflation Expectations figures.
The Australian Dollar’s recent strength suggests confidence in the country’s economic outlook and the central bank’s commitment to controlling inflation. The potential for further interest rate hikes is supported by the view that domestic demand remains strong despite existing higher rates. Economic data releases in both the US and Australia will be crucial in determining the currency’s near-term trajectory, particularly regarding their influence on monetary policy decisions by both central banks.