The Australian dollar has surged above US71¢ for the first time in three years after the Reserve Bank of Australia (RBA) indicated that current inflation levels are unacceptably high, bolstering expectations of further interest rate increases. The Aussie dollar reached US71.28¢, a level unseen since early 2023, after RBA Deputy Governor Andrew Hauser addressed a business forum on Wednesday. He stated that underlying inflation, currently around 3.5 per cent, poses a risk of persistence.
Hauser emphasised the RBA’s commitment to returning inflation to the target band of 2 per cent to 3 per cent. This hawkish stance in bond markets has reinforced expectations that the RBA will raise the cash rate to 4.1 per cent this year. Financial markets are pricing in a 72 per cent chance of a rate hike at the upcoming May policy meeting, with additional increases anticipated by August. Traders are forecasting a total of two to three rate increases throughout the year.
According to Ray Attrill, head of FX strategy at National Bank of Australia (NAB), the Aussie’s breach of US71¢ occurred shortly after Hauser’s remarks. The currency has also been supported by a weakening US dollar, spurred by underwhelming economic data from the United States. NAB anticipates the Australian dollar, which has risen by over 6 per cent this year, to reach US72¢ by December.
The Australian dollar also strengthened against other major currencies, including the pound and the New Zealand dollar. It reached a five-year high against the Canadian dollar and approached 60¢ against the euro, a level last seen a year ago. The National Bank of Australia is one of Australia’s largest banks, providing a range of financial services including retail, business, and institutional banking.
