Australian Dollar dips to fresh lows sub-0.7000 despite hawkish RBA Bullock

The Australian Dollar (AUD) fell to record low levels under 0.7000 per US Dollar (USD) on Tuesday, despite the Reserve Bank of Australia's (RBA) decision to raise interest rates and Governor Michele Bullock's hints at additional monetary tightening. The AUD/USD pair dropped below 0.7000, reaching its lowest point in two months at 0.6978, as the initial positive reaction to the rate hike faded at 0.7030.

The RBA increased its benchmark interest rate by 25 basis points to 4.6%, the highest level in 15 years. The central bank's statement highlighted potential upside risks to inflation from high energy prices and signs of slowing economic growth. However, it also suggested that further rate hikes may be necessary to bring inflation back to target.

RBA Governor Bullock reiterated these concerns in her press conference, stating that the Middle East conflict had intensified inflation pressures and that the board would raise rates again if needed. She also noted that while a pause was considered during the meeting, all options remained on the table for September. Regarding the economic outlook, Bullock emphasized that "recession is not the central base case at this point" and that unemployment remained "quite low by historical standards."

Despite this, the AUD has struggled to find support from Bullock's remarks, maintaining its bearish trend against a stronger USD. Investors are anticipating strong US Personal Consumption Expenditures (PCE) Price Index data on Wednesday and a positive Nonfarm Payrolls reading on Friday, which could strengthen hopes for further interest rate hikes by the Federal Reserve (Fed) in October.

According to TD Securities, the policy environment remains favorable for the US Dollar, as they "expect the Fed to hike two more times (October and January)." The RBA's decision-making process, based on its assessment of inflationary pressures, will determine whether the AUD remains under pressure or begins to recover.