AUD/USD rises as RBA rate hike bets grow, US inflation steady

AUD/USD trades around 0.7150 on Wednesday at the time of writing, up 0.42% on the day and extending its winning streak for a fourth consecutive day. The Australian Dollar (AUD) remains supported by growing expectations of monetary tightening from the Reserve Bank of Australia (RBA).

Markets are now pricing in nearly a 75% chance of a 25 basis point rate hike at next week’s RBA meeting, according to Reuters, which would bring the policy rate to 4.1%. These expectations were reinforced by comments from RBA Deputy Governor Andrew Hauser, who warned that Oil price volatility and tensions in the Middle East represent a significant challenge for central banks. According to him, the magnitude and persistence of the energy-driven inflation shock remain highly uncertain.

On the US side, the latest inflation data did little to change monetary policy expectations. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) remained unchanged at 2.4% YoY in February, in line with market forecasts, while monthly inflation accelerated to 0.3% from 0.2% in January. Core inflation, which excludes volatile food and energy prices, increased by 0.2% MoM and 2.5% on an annual basis, in line with forecasts.

These figures suggest that price pressures in the United States (US) remain contained but persistent, still slightly above the Federal Reserve’s (Fed) 2% target. Investors widely expect the central bank to keep interest rates unchanged at its upcoming meeting while waiting for clearer evidence that inflation is cooling.

At the same time, geopolitical developments continue to drive uncertainty in financial markets. The conflict between the US and Iran has entered its twelfth day, while risks surrounding the Strait of Hormuz, a critical route for global Oil shipments, are keeping energy markets on edge. This situation could reinforce global inflation pressures and influence central bank policy decisions in the months ahead.