Aussie Dollar Dips on Softer CPI Data

The Australian dollar edged up toward US$0.70, trading above multi-month lows as a sharp decline in US Treasury yields weighed on the greenback. A rally in US government bonds pulled yields down from a 24-year peak, offering some relief to global markets after weeks of heavy selling. The drop in yields helped the Aussie stay on track for a modest weekly advance, its first in five weeks. Attention is now turning to Australia's September employment report due next Thursday, following an unexpected rise in the unemployment rate to 4.6% in August. A further increase in joblessness would strengthen the case against another Reserve Bank of Australia rate hike after last month's increase lifted the cash rate to 4.60%. Markets are pricing in around a 30% chance of a hike in November, rising to 46% in December. The central bank's October 13 meeting minutes will also be on focus, as well as the September-quarter CPI report later this month, with core inflation expected to remain elevated.

The Australian dollar held below $0.70, near multi-month lows as the US dollar strengthened following hawkish Federal Reserve meeting minutes. The minutes showed policymakers viewed inflation as the biggest risk to the outlook, with several participants seeing further rate hikes as appropriate and others judging policy as only mildly restrictive. Still, markets remained skeptical of an October Fed hike, pricing just a 19% probability of a quarter-point increase. In Australia, markets are also pricing just a 25% chance of another RBA hike in November, after last week’s increase to 4.60%. The central bank's October 13 minutes will be on focus, followed by September labor data next week, with the unemployment rate closely watched after rising to a five-year high of 4.6% in August. A steady or higher reading could reduce expectations for further tightening, while the September-quarter CPI report later this month will be crucial, with core inflation expected to remain elevated.

The Australian dollar held near $0.70 after a three-session rally as investors awaited key central bank updates for clues on the policy outlook. The Federal Reserve is due to release minutes from its September meeting and hear from several policymakers this week, while markets are pricing in around an 80% chance of no rate change this month following a weaker-than-expected labor market report. Meanwhile, the Aussie found some support as the US dollar weakened broadly, with its biggest decline against the euro as stress in European bond markets eased. In Australia, consumer sentiment slumped for a second straight month in October as higher borrowing costs squeezed household finances and added to cost-of-living pressures. Markets now see a 75.7% chance that the RBA will leave rates unchanged in November, versus a 24.3% chance of another hike. Attention will also turn to the RBA’s meeting minutes next week for further policy signals.