Australian dollar rallies toward $0.72 on rising RBA hike odds

The Australian dollar rose toward $0.72, extending its rally to a fresh three-month high amid growing expectations of an interest rate hike as early as next month.

The shift in rate expectations followed hotter-than-expected July inflation print, which showed price pressures remained elevated and prompted several major banks to revise their RBA forecasts.

National Australia Bank now expects the central bank to raise its cash rate to 4.6% at the September 28-29 meeting, while Commonwealth Bank and ANZ see a hike in November, with both flagging a risk of an earlier move.

Markets are pricing roughly a 50% chance of a September hike, sharply higher from 17% before the inflation report, while a November increase is now fully priced.

The RBA kept its cash rate at 4.35% in August after three hikes earlier this year, but policymakers have warned they could tighten further if inflation risks build.

Focus now turns to Q2 GDP next week and jobs data for further clues on the policy outlook.