Aussie Rally Puts RBA Hikes in Play as Dollar Awaits Warsh
Aussie extends gains as three big banks flip to RBA hikes. Dollar holds steady ahead of Warsh's Jackson Hole speech, where the Fed chair can reshape near-term policy pricing.
The dollar steadied on Thursday, but the recovery looked tactical rather than structural. Gains were limited, and the latest US data produced almost no change in Fed pricing. The probability of a September rate hike edged up to 34% from about 33% on Wednesday, according to CME FedWatch.
More plausible drivers are calendar and positioning. August month-end is approaching, bringing portfolio rebalancing flows, while Fed Chair Warsh's first major Jackson Hole address on Friday gives traders reason to trim risk. Dollar strength ahead of the event looks more like defensive positioning than new directional conviction, traders said.
Aussie was the strongest currency for a third straight session after a rapid reversal in expectations for RBA policy. NAB and CBA now forecast another hike this year. ANZ has also joined the more hawkish consensus, with Goldman Sachs and Citi following, according to the banks' notes. RBA minutes showed policymakers considered pre-emptive tightening, and July trimmed mean CPI held at 3.6%. Household spending data also showed resilient demand. Combined, those releases moved the debate from whether the tightening cycle is finished to whether the next hike arrives in September or November, traders said. AUD/JPY approached its 114.91 high, with 120 coming into view on a sustained breakout.
The contrast between the two currencies is the clearest FX signal of the day, traders said. The Aussie rally reflects fresh information, while the dollar bounce reflects positioning ahead of fresh information still to come.
CAD also strengthened after Brent recovered above $87, with fresh geopolitical risks complicating the recent easing in Middle East risk premium. Reports surrounding tanker security and renewed Ukraine escalation helped oil rebound, giving the Canadian dollar support independent of the AUD rates story.
EUR and GBP slipped against a firmer dollar. Sterling faced some pressure after markets trimmed BoE hike expectations, while the euro's recent hawkish policy narrative was not enough to prevent modest profit-taking against the dollar, traders said.
Everything now converges on Warsh. His Jackson Hole address can reshape near-term Fed pricing, but the bigger test is whether he reinforces the institutional separation between the Fed and Treasury strongly enough to reassure markets worried about fiscal dominance, analysts said. He does not need to comment directly on Treasury's buyback program. What matters is how firmly he separates monetary policy from fiscal financing needs and whether he signals that inflation control remains the dominant constraint.
Gold should be watched alongside the dollar and long-end yields, traders said. A strong monetary-independence message would challenge gold's fiscal-credibility trade more directly than ordinary rate guidance alone.
For now, the dollar has stabilized without establishing a new bullish narrative. Warsh's Friday address will decide whether traders spent Thursday preparing for the start of a larger rebound or merely creating room for the next leg of the dollar selloff, traders said. The speech is scheduled for Friday morning.
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