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AUD/USD appreciated by 2.2% this month, as of August 26, adding to July’s 1.5% gain. At 0.7178, the currency is stronger than the 0.70 level seen at the hawkish June 17 FOMC meeting. Among the G10 currencies, the Oz remains 2026’s best performing currency (+7.6% YTD) and has the highest policy rate.
The recent repricing of a Reserve Bank of Australia rate hike in November has been swift, triggered by Tuesday’s hawkish August minutes amid sticky inflation. The board debated whether “pre-emptive” tightening might be necessary due to upside risks to their inflation forecasts. July’s CPI data crystallized those risks with headline inflation coming in at 3.5% YoY, above market expectations of 3.3%, while trimmed mean inflation remained unchanged at 3.6% rather than declining to 3.5%. RBA Governor Michele Bullock will present her semi-annual testimony before the House of Representatives Standing Committee on Economics on September 18, before the RBA meeting on September 29.
It remains to be seen if AUD/USD can break above the 0.6833 to 0.7278 range set after Operation Epic Fury. To do so¸ AUD would also need two external factors. First, the currency recovery across most of Asia, its largest export destination, must extend, especially for the CNY, KRW, and JPY. Second, USD should remain weak amid a shifting backdrop in which aggressive Fed hike expectations have been overtaken by policy credibility concerns following the US Treasury's bond buybacks aimed at stabilizing long-dated bond yields. Fed Chairman Kevin Warsh’s Jackson Hole speech tomorrow will be important for the USD; the market is not ruling out a hike after the November 3 US midterm elections.
Quote of the Day
“When I was younger, I used to be a high jumper before I switched to hurdles.
Liu Xiang
August 27 in history
In 2004, Liu Xiang won the 110-meter hurdles gold medal at the Athens Olympic Games. It was China's first-ever men's gold medal in track and field Olympic history.
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