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AUD/USD falls after hawkish Fed message lifts US dollar demand
AUD/USD was down about 0.3% to roughly 0.7170, after FedWatch showed the odds of a September rate hike rising to around 60% from about 36% before the speech.
The Australian dollar weakened versus the US dollar on Friday after hawkish remarks from Federal Reserve Chair Kevin Warsh pulled up demand for the greenback, pushing AUD/USD down about 0.3% to around 0.7170 at the time of writing.
FXStreet said the move followed Warsh emphasizing that price stability should remain the Fed’s top priority and warning policymakers still have work to do to confirm underlying inflation is moving toward the Fed’s goal. Warsh also reiterated that the Fed’s 2% PCE inflation target is “firm and fixed,” after noting summer data were better than expected but not enough to show a meaningful shift in underlying price dynamics.
The hawkish tone triggered a sizable repricing of rate expectations, with the CME FedWatch Tool indicating markets assigned roughly a 60% chance of a Fed rate hike at the September meeting, compared with about 36% beforehand. That shift supported the US dollar and pressured AUD/USD to unwind from an earlier intraday high near 0.7206, its highest level since mid-May.
On the Australian side, FXStreet noted the Reserve Bank of Australia outlook continues to offer some support, citing expectations for a fourth rate hike before year end. The RBA Bulletin highlighted that inflation has stayed elevated above its 2% to 3% target, while Australia’s CPI eased to 3.5% year over year in July from 3.8% in June, with the trimmed mean CPI steady at 3.6% year over year. Still, FXStreet said the US rate repricing dominated in the near term, leaving AUD/USD pulling back while trading around 0.7166 on the four-hour chart.