Australian dollar pauses after blistering rally, rate support intact

Australian dollar experienced a pause after its recent rally on Wednesday as a widening war in the Gulf impacted risk sentiment. Despite hawkish central bank messaging, the Aussie settled at $0.7220, following a four-month high of $0.7231. It had surged more than 5% from its June low and was nearing the May peak of $0.7277 and a high in mid-2022 of $0.7285.

Reserve Bank of Australia Deputy Governor Andrew Hauser hinted at a potential rate hike discussion at the next policy meeting on September 28-29, citing increasing inflation concerns after his recent visit to the US. The bank had already lifted interest rates by 75 basis points this year, maintaining them at 4.35% for two consecutive meetings.

Despite the central bank's rate hikes, the economy outperformed expectations, and inflation pressures persisted. Goldman Sachs shifted its rate hike expectation to this month from November, with a 75% chance of a move to 4.6% and a 20% chance of reaching 4.85% next year. The Aussie traded near multi-year highs against several currencies, including NZ$1.2325 and A$1.6095 against the euro.

Meanwhile, the New Zealand dollar was flat at $0.5858, having lost 0.4% overnight to 0.5836, with a potential peak of 3.5% as investors adjusted their rate hike expectations.