Aussie Dollar Hits Four-Month High as RBA Rate Hike Bets Firm

The Australian dollar climbed to a four-month peak against the US dollar on Friday, buoyed by shifting expectations for interest rate moves in both countries. Markets have significantly increased the probability of a Reserve Bank of Australia (RBA) rate hike at its September meeting, following recent data on inflation and economic growth.

Traders now assign a 66% chance of a quarter-point increase to 4.60% this month, a sharp jump from just 10% two weeks ago. There is also a 50% probability priced in for a further move to 4.85% later. This hawkish repricing helped the Aussie rise 0.2% to $0.7212, after gaining 0.4% overnight. Breaking above the $0.7208 level opens the path toward the 2026 high of $0.7277, with major support seen at $0.7122.

Against the yen, however, the Australian dollar retreated to 112.17, well off its recent 36-year peak of 114.98, as expectations of a Bank of Japan rate hike squeezed short positions and boosted the yen.

The New Zealand dollar, meanwhile, found some support at $0.5890 after bouncing 0.5% overnight, but remained down 0.6% for the week. The kiwi was hit hard on Wednesday when the Reserve Bank of New Zealand (RBNZ) raised rates by a quarter point to 2.75% as expected, but projected a much more gradual tightening path than markets had anticipated.

Investors have sharply scaled back bets on an October hike, though a move to 3.0% in December is still priced in. Swaps imply an eventual peak of 3.5%, above the RBNZ's projected 3.15%.

The divergent policy outlooks have weighed on the kiwi against its trans-Tasman neighbour, with the Aussie touching a 13-year high of NZ$1.2285. Analysts suggest the pair could push higher, with potential targets around NZ$1.23 to NZ$1.25. However, some strategists see the Aussie retreating next year, as the RBA is viewed as more likely to begin easing in late 2027, ahead of the RBNZ.