Key Points:
The Australian dollar extended its recent losses, falling below $0.666, marking a three-week low as weak domestic economic data and cautious global market sentiment weighed on the currency.
Picture: AUDUSD dips below $0.666 due to weak consumer sentiment, as observed on the VT Markets app.
A private survey showed a dip in consumer confidence in September, reflecting growing concerns over the economy and job security. Additionally, business sentiment hit a nine-month low in August, adding further pressure to the Australian economy. These indicators have sparked worries that economic growth may be stalling, especially as inflation remains stubbornly high.
The stand of the Reserve Bank of Australia on interest rates
Reserve Bank of Australia (RBA) Governor Michele Bullock emphasised last week that the central bank opted to keep rates unchanged during its August meeting, even though inflationary pressures persist.
Read also: Interest rate tug-of-war for central banks
While inflation remains a key challenge, the RBA aims to balance bringing inflation back to the 2-3% target while preserving gains made in the labour market. Such a cautious tone and policy stance, coupled with softening domestic data, have contributed to the recent weakness of the AUD.
Externally, traders are exercising caution ahead of critical U.S. inflation data that could significantly impact the Federal Reserve’s interest rate decisions. While the market had previously expected a significant rate cut from the Fed, a mixed U.S. jobs report has tempered those expectations, with analysts suggesting that too aggressive a cut could send the wrong signals to the markets.
Outlook for AUD traders
For short-term traders, the Australian dollar could remain under pressure as both domestic and global uncertainties play out. Market participants should closely monitor upcoming U.S. inflation readings, as any surprises could lead to heightened volatility in the currency pair. Additionally, traders will look for further guidance from the RBA as inflationary pressures remain the focal point in shaping monetary policy.
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