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Reserve Bank of Australia rate hike odds for September fell as low as 21% after last week's inflation data, then rebounded to a near coin flip within days, even as the U.S. Dollar Index continues losing ground against a broad basket of currencies. That volatility in pricing has coincided with the Australian dollar's advance toward key resistance, its third straight weekly gain following a stretch that saw it drop nearly 5.6% off the yearly high. October pricing, meanwhile, holds firm for at least a quarter point hike. The repricing shows how quickly rate expectations are moving even as the broader dollar backdrop stays weak.
Michael Boutros is a Senior Market Analyst at FOREX.com, with more than 20 years spent on FX trade desks. His medium term, event driven approach, built through more than a decade hosting a weekly strategy webinar, keeps him focused on exactly this kind of setup, where a swing in rate odds meets a currency pair testing a defined technical level.
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Last week's Australian inflation data set off a rapid repricing in rate expectations. Boutros notes "the September expectation for a rate hike start to dwindle down to about 21%" before odds swung back toward a coin flip within days. That reversal leaves September pricing hovering near 50 50, a sharp move for a single data cycle. October pricing has not budged in the same way, with the market still assigning at least a quarter point hike to that meeting.
"the dollar is still under assault" even as the interest rate hike timeline for Australia edges closer, Boutros says. He adds that a break of the Aussie's current resistance zone could accelerate that weakness further, noting "if we break this resistance here in Aussie, it might lead to a larger washout in the DXY". That leaves the currency's near term technical setup doing double duty, as both a standalone trade and a proxy for broader dollar direction.
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--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Michael Boutros, Senior Market Analyst at FOREX.com
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