ASX 200 to drop as traders expect rate rises

• The ASX 200 is set to fall as traders price in three additional interest rate increases by the Reserve Bank of Australia.
• Futures point to a 0.7% drop at market open, following a nearly 4% decline earlier this month.
• Persistent inflation driven by rising global oil prices above US$100 a barrel is fueling expectations of tighter monetary policy.

The S&P/ASX 200 is set to open 0.7% lower on Sept. 21 as investors price in three potential interest rate increases by the Reserve Bank of Australia.

This projected fall follows a monthly drop of nearly 4% that erased the benchmark index's gains for the year, despite modest Friday increases on Wall Street.

"Australian share markets are at risk of a correction given the lack of any resolution to the Iran war and rising oil prices, rising bond yields and stretched valuations,” said AMP Deputy Chief Economist Diana Mousina.

Market participants currently price in a 94 per cent chance of a rate rise to 4.6% on Sept. 29, with subsequent increases anticipated in November and March.

The rate hike expectations stem from elevated energy costs, as Brent crude remains above US$100 a barrel following regional security disruptions in the Middle East.

The inflationary pressures have simultaneously pushed global government bond yields to multi-decade highs, with the Australian 10-year yield reaching its highest point in 15 years.