Aussie approaches three-week high as RBA signals inflation concerns

The Australian dollar strengthened against its US counterpart on Wednesday, approaching a three-week high as hawkish comments from the Reserve Bank of Australia reinforced expectations of another interest rate increase.

Price overview

• The Australian dollar rose approximately 0.22% to $0.6989 against the US dollar as of 05:47 GMT.

• The currency had climbed to $0.7017 in the previous session, its strongest level in nearly three weeks.

Australian interest rates

RBA Deputy Governor Andrew Hauser said the inflation outlook had deteriorated materially, raising uncertainty over whether the central bank would need to increase interest rates again in November.

His remarks supported the Australian dollar despite recent weakness in domestic employment figures, which had previously complicated expectations for further monetary tightening.

The RBA has raised its benchmark interest rate four times this year to 4.60%, seeking to contain persistent price pressures. Higher energy costs, resilient demand from Australia's Asian trading partners and increased investment in AI infrastructure have complicated the inflation outlook.

The next major test will be Australia's quarterly inflation report on October 28, ahead of the RBA's November 3 policy meeting. Stronger-than-expected inflation could reinforce expectations of another 25-basis-point increase, while softer figures may encourage policymakers to leave rates unchanged.

US dollar and global markets

The US dollar remained under pressure after falling to a three-week low on Tuesday, as declining Treasury yields and easing oil prices reduced demand for the American currency.

Improving sentiment in global equity markets also weakened demand for the dollar as a safe-haven asset, although continuing tensions in the Middle East remained a source of uncertainty.

Investors are now assessing the prospect of further RBA tightening alongside next week's Federal Reserve policy decision, with changes in interest rate expectations likely to influence the Australian dollar's near-term direction.