As the market prepares for another rate hike by the Federal Reserve of Australia, Australia's financial situation is tightening. The next decision of the Federal Reserve of Australia will be held on August 6th.

The Australian dollar rose against other G10 currencies as Australian bond yields surged, indicating that the market is preparing for a rate hike by the Reserve Bank of Australia.

Previously, Australia's monthly inflation index for May rose by 4.0% year-on-year for the third consecutive month, confirming that price pressure has once again intensified. Cash futures show that the likelihood of the Reserve Bank of Australia raising interest rates at its September meeting has risen from less than 15% the day before the inflation report was released to nearly 60%.

The revised mean, which measures the core inflation rate, has jumped from 4.1% to 4.4%, highlighting the relatively broad nature of this unexpected growth. This is a particularly important reading as the Federal Reserve of Australia closely monitors this number to better understand the true development of domestic inflation.

Market analyst Karl Schamotta said, "In May, Australian housing prices rose at their fastest pace in six months, disrupting market balance and increasing the likelihood of another interest rate hike this year."

Due to the possibility of another rate hike by the Federal Reserve of Australia, analysts suggest that the Australian dollar may continue to receive support.

A report from Citigroup stated, "As the Reserve Bank of Australia is considered the last central bank to relax financial conditions, the resilience of the Australian dollar continues to show, with a solid bottom above 0.65 against the US dollar, targeting the 0.68-0.69 range."

The strategist at the bank believes that the Australian dollar will continue to rebound.

However, if the Federal Reserve of Australia chooses to postpone interest rate hikes and downplay recent inflation trends, the Australian dollar may recoup some of its recent gains.

"In our view, it is unlikely that the Reserve of Australia will really raise interest rates again. Firstly, the economy is barely maintaining, which means that demand will soon begin to fall short. On the other hand, inflationary pressure from the labor market will further cool down," said Marcel Thieliant, head of Asia Pacific at Capital Economics

Kaitou Macro has postponed the expected first rate hike by the Reserve of Australia, from the first quarter of next year to the second quarter of next year.

This will align with a consensus that the Reserve Bank of Australia will be one of the last central banks to cut interest rates. This can provide sustained support for the Australian dollar through the expected interest rate channel.