Key Moments
- The Australian Dollar (AUD/USD) trades near 0.7120 during Friday’s Asian session, gaining for a second straight day on hawkish RBA messaging.
- Consequently, UBS analysts forecast two more RBA rate hikes, projecting a terminal cash rate of 4.85%.
- Meanwhile, Fed funds futures reflect a 53.1% chance of another U.S. rate hike in October, rising from 44% a day earlier.
Australian Dollar Extends Gains on Hawkish RBA Remarks
The Australian Dollar (AUD) is advancing against the U.S. Dollar (USD) for a second straight day. Consequently, AUD/USD trades near 0.7120 during Friday’s Asian session as traders digest fresh central bank commentary.
RBA Governor Michele Bullock noted during a parliamentary hearing that inflation risks have materialized. Therefore, she indicated that another interest rate hike may be required. As a result, markets now expect a fourth rate hike this year at the RBA’s late-September meeting.
Similarly, RBA Deputy Governor Andrew Hauser emphasized the Board’s firm commitment to its inflation target. In response, UBS analysts now project two additional rate hikes. They estimate these moves will raise the terminal cash rate to 4.85%.
UOB Holds Bearish Medium-Term Outlook for AUD
Despite this short-term bounce, UOB Group strategists maintain a negative medium-term outlook for AUD/USD. Specifically, they turned negative on September 11 at 0.7160 and projected a drop toward 0.7120.
Subsequently, AUD/USD dipped to 0.7109 and closed yesterday at 0.7087 (-0.64%). Because the pair broke below 0.7100, UOB now expects further weakness toward 0.7050. Furthermore, analysts note that only a move above 0.7140 would signal near-term stabilization.
| Event / View | Level / Detail | Comment |
|---|---|---|
| AUD/USD spot (11 Sep) | 0.7160 | UOB turned negative on AUD at this level |
| Initial downside target | 0.7120 | UOB projected a quick test of this support |
| Subsequent low | 0.7109 | Reached after AUD/USD broke below 0.7120 |
| Close “yesterday” | 0.7087 (-0.64%) | Break below 0.7100 triggered further sell signals |
| Next downside objective | 0.7050 | UOB now expects AUD to fall toward this target |
| Strong resistance | 0.7140 | Breaching this level signals potential stabilization |
Fed Delivers Rate Hike as October Expectations Rise
Meanwhile, the Federal Reserve raised its benchmark rate by 25 basis points on Wednesday. Notably, this marks its first rate hike since 2023. Federal Reserve Chair Kevin Warsh stated that inflation remains elevated and recent data shows little improvement.
As a result of his comments, traders recalibrated their expectations. According to the CME FedWatch tool, markets now assign a 53.1% probability to an October rate hike, up from 44% on Thursday.
Key Policy Drivers for the Australian Dollar
The RBA primarily influences the Australian Dollar through its cash rate target. By adjusting interest rates, the central bank aims to keep inflation within its 2–3% target range.
Consequently, higher policy rates relative to major peers typically strengthen the Australian Dollar. Conversely, lower relative rates tend to weaken the currency.
China and Commodity Linkages
Because China is Australia’s largest trading partner, Chinese economic growth strongly impacts the Australian Dollar. Specifically, robust Chinese activity increases demand for Australian exports, boosting the local currency.
Iron Ore and Trade Balance Dynamics
Similarly, Iron Ore serves as Australia’s top export commodity. Rising prices increase export revenues, which improves Australia’s Trade Balance and supports the Australian Dollar.
Ultimately, a positive Trade Balance drives foreign demand for Australian assets. On the other hand, falling export prices or a widening trade deficit typically pressure the currency lower.
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