News Maker 23

The Australian dollar weakened against the US dollar during Friday's trading (August 28) after previously touching its highest level since mid-May. The AUD/USD pair fell approximately 0.3% to the 0.7170 area—having earlier reached 0.7206—as demand for the greenback rose following hawkish comments from Federal Reserve official Kevin Warsh.

Warsh emphasized that price stability must remain the Fed's primary focus. He stated that the central bank needs to be confident that underlying inflation is genuinely moving toward the target before easing its stance. Warsh also reaffirmed that the 2% PCE inflation target remains "firm and unchanged."

While acknowledging that inflation data over the summer was better than expected, Warsh assessed that the improvement was insufficient to indicate a fundamental shift in price trends. This tone immediately altered market expectations regarding Fed policy.

According to the CME FedWatch tool, the market now prices in a roughly 60% probability of an interest rate hike at the September meeting, a sharp rise from approximately 36% prior to Warsh's speech. This surge in rate-hike expectations boosted the US dollar while placing downward pressure on the AUD/USD pair.

From Australia, the Aussie dollar continues to receive some support from the Reserve Bank of Australia's policy outlook. Although July inflation dipped to 3.5% year-on-year from 3.8%, it remained above the 3.2% forecast. Meanwhile, the Trimmed Mean CPI held steady at 3.6%—hotter than the 3.5% estimate—keeping the possibility of further RBA rate hikes before year-end on the table.

Newsmaker Analysis: AUD/USD is currently caught in a tug-of-war between two central banks grappling with persistent inflation. However, aggressive repricing of Fed rate-hike odds has temporarily given the US dollar the upper hand. Unless AUD/USD reclaims the 0.7200–0.7210 range, the risk of a corrective pullback remains, while continued hawkish rhetoric from the Fed could drive the pair lower. (yds)

Source: Newsmaker.id