The Australian Dollar has strengthened significantly, trading near three-year highs against the US dollar. This surge is fueled by robust Australian labor market data and increased expectations of a further interest rate hike by the Reserve Bank of Australia (RBA) in May. While economists anticipate rates to remain steady in March, the overall sentiment favors continued monetary tightening to combat persistent inflation.
- The Australian Dollar strengthened to around $0.706.
- Australia’s unemployment rate remained steady at a seven-month low of 4.1% in January.
- Employment increased by 17,800.
- Markets are pricing in a 77% chance of a 25-bp rate hike to 4.10% in May.
- The Australian Dollar is the second-best-performing Group-of-10 currency this year, gaining over 5.5%.
- Hawkish RBA speculation remains firm following steady job market conditions.
- Traders have fully priced in a hike in the Official Cash Rate (OCR) to 4.1% by the August meeting.
- The RBA raised its OCR to 3.85% earlier this month and kept the door open for further monetary tightening.
The Australian Dollar benefits from a confluence of factors including a resilient domestic labor market and expectations of continued interest rate hikes by the central bank. Steady unemployment numbers and job gains reinforce the view that the economy remains strong, allowing the RBA to maintain its hawkish stance. Although there is some US Dollar strength, the fundamentals seem to favor a further appreciation of the Australian currency.