Brown Brothers Harriman's (BBH) Elias Haddad reports AUD/USD has broken above 0.7100 with momentum toward 0.7150, as Australian sentiment data leave Reserve Bank of Australia expectations largely unchanged. Despite some softening in employment indicators, Haddad believes the RBA can implement a second consecutive rate hike on March 17, supported by internal models showing a positive output gap and tighter capacity constraints.

Australian Dollar supported by RBA outlook

"AUD/USD rallied above 0.7100, with momentum building toward the mid-February high around 0.7150."

"Australia’s latest business and consumer sentiment indexes won’t change the dial on RBA rate hike expectations, though the employment readings flash some red flags. The NAB business employment conditions index fell 2pts to +3 in February, consistent with a rising unemployment rate. "

"Meanwhile, the Westpac–MI consumer sentiment unemployment expectations index rose 3.8% to 134.7 in March, above the long run average of 129.2, suggesting consumers were less confident about the labor market outlook."

"We think the RBA can deliver a back-to-back rate hike next week because all the RBA’s internal models show a positive output gap consistent with tighter capacity constraints."

"The RBA next policy rate decision is on March 17, and cash rate futures imply 55% odds of a 25bps increase to 4.10%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)