The Australian dollar strengthened to around $0.71 on Wednesday, extending gains from the previous session as hotter-than-expected inflation data fueled expectations of additional interest rate hikes this year. The annual inflation rate stood at 3.8% in January 2026, surpassing market expectations of 3.7%. Meanwhile, the RBA’s trimmed mean CPI, a key measure of underlying inflation, ticked higher to 3.4%, compared to both market forecasts and December’s 3.3%. The latest data followed a recent report showing that unemployment held at a historically low level in January, while wage growth remained elevated. Markets are now expecting the central bank to lift the cash rate again in May, potentially to 4.1%, with around a 60% chance of another increase in November. Nevertheless, the central bank, which earlier this year became the first major developed-market central bank to resume raising interest rates, has maintained a data-dependent stance.