Aussie Dollar Dips on Softer CPI Data

The Australian dollar traded below $0.69, hovering at its lowest level since late March as weak domestic economic surveys and a stronger US dollar weighed on the currency. Consumer sentiment fell to a four-year low in November, while business conditions remained stuck in negative territory, a level not seen in six years, reflecting growing caution over the domestic economic outlook. The readings reinforced expectations that the Reserve Bank of Australia has finished its tightening cycle following five interest rate increases this year, which brought the cash rate to an eighteen-year high of 4.85%. Markets now imply an 82% probability that rates have peaked, with a quarter-point rate cut fully priced in by the end of 2027. In contrast, hotter-than-expected US core inflation, which rose 0.3% in October, and hawkish remarks from Federal Reserve officials, lifted expectations for a potential 50-basis-point rate hike next month, supporting the US dollar and adding pressure on the Aussie.

The Australian dollar held above $0.69 after rising nearly 1% the previous day to recover from a recent seven-month low, as investors rotated back toward risk-sensitive currencies amid a softer US dollar and improving global risk appetite. A rebound in global equities and easing concerns over renewed US-Iran tensions helped lift demand for riskier assets, while lower oil prices further improved the broader market outlook. However, domestic headwinds continue to weigh on the currency, with Westpac's consumer sentiment index falling 2.7% to 78.2 in November, its lowest level in four years. Business mood also fell to a six-year low. The cautious outlook is compounded by a less-hawkish Reserve Bank of Australia, which raised interest rates for a fifth time this year last week in a split 6–3 decision but dropped its tightening bias. Interest rate swaps currently imply an 80% probability that rates have peaked, with around 30 basis points of easing priced in by the end of next year.

The Australian dollar traded around $0.68 after tumbling 2.5% last week to a seven-month low, as a sharp selloff in global equities and rising bets of an imminent US rate hike boosted the greenback. Stronger-than-expected US employment data and hawkish remarks from Federal Reserve officials lifted expectations of a December rate hike, boosting the greenback to its strongest level in nearly five months. Meanwhile, RBA Assistant Governor Sarah Hunter said there was limited evidence that AI had meaningfully lifted productivity or caused widespread job losses, though it could pose risks to financial stability. Last week, the Reserve Bank of Australia raised interest rates for a fifth time this year in a split 6–3 decision, but dropped its tightening bias. Swaps now imply an 80% probability that Australian rates have peaked, with 30 bps of easing expected by the end of next year. Traders also await RBA board member Marnie Baker’s speech on Thursday for further clues on the policy outlook.