Australian Dollar Hits Four-Year High as Markets Price 67% Chance of RBA Rate Hike in May

The Australian dollar has climbed to 71.89 US cents, its highest level since 2022, as markets now price a 67% chance of another Reserve Bank of Australia rate hike at the May 4-5 board meeting. This follows March employment data that showed the unemployment rate remained steady at 4.3%, with total employment rising by 18,000 and full-time employment increasing by 53,000. The RBA raised the cash rate by 25 basis points to 4.10% in March, and with sticky inflation persisting in the mid-3% range, the central bank has signaled it will not ease policy until it sees a clear loosening in labor conditions. Australian front-end bond yields have climbed 8 basis points to 3.87%, and rate-sensitive sectors like banks and property trusts have underperformed the broader ASX 200. RBA staff analysis suggests headline inflation could temporarily reach 5% if oil prices remain near $100 per barrel. A May rate hike would push the cash rate to 4.35%, increasing borrowing costs and mortgage repayments for households.