Australian Dollar extends rally as RBA hike bets, offset US data

The Australian Dollar continued its upward trend, rising more than 0.17% for a third consecutive day, despite heightened expectations of a potential U.S. rate increase by year-end. The AUD/USD pair climbed from 0.7159 to 0.7176. U.S. economic data played a significant role in shaping market sentiment. The Core PCE index, the Federal Reserve's preferred inflation gauge, rose by 3.3% year-over-year in July, matching expectations.

The headline inflation rate also remained steady at 3.7% year-over-year, though it surpassed analysts' forecasts of a slight decline to 3.6%. This led market participants to anticipate an above-70% probability of a Federal Reserve rate hike at their December 2026 meeting. Meanwhile, the US Dollar Index (DXY) increased by 0.23% to 99.13, while U.S. Treasury yields climbed, with the 10-year note closing at 4.649% – a two and a half basis points rise.

In contrast, U.S. GDP growth for the second quarter of 2026 expanded by 1.5% year-over-year, as anticipated. Durable Goods Orders in July also posted a solid increase, driven by transportation. Following the release of U.S. economic data, investors turned their focus to Fed Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday, preceded by the latest jobless claims data on Thursday.

In Australia, the trimmed mean inflation rate exceeded estimates in July, at 0.5% month-over-month, increasing the likelihood of another rate hike by the Reserve Bank of Australia (RBA). The RBA's discussions during their August 29 meeting hinted at this possibility, with the swaps market pricing in a 43% chance of a rate hike at the September 29 meeting.

Traders had priced in 25 basis points of tightening for December. The Aussie economy will also witness the release of Private Capital Expenditure for Q2 and the RBA's bulletin for the second quarter. On the chart, AUD/USD is trading at 0.7183, breaking above a cluster of key moving averages (50-, 100-, and 200-day Simple Moving Averages) around 0.7006, indicating a bullish near-term outlook.

Price has tested a support trend line and the Relative Strength Index (RSI) near 68 suggests strong but gradually weakening momentum as the pair approaches overbought territory, potentially leading to consolidation or a corrective pause before further gains. Support lies at the trend-line-backed area around 0.7183, while deeper demand is seen at 0.7087 and 0.7086 from prior ascending support lines, followed by the broader SMA base near 0.7006.

Should the bulls extend the move, the next notable resistance lies with the broader downward trend structure, with the medium-term resistance line originating at 0.8015 acting as a barrier.