Australian dollar edges higher overnight amid weaker U.S. data and shifting rate expectations

Daily Currency Update

Overnight, the Australian dollar recorded a modest gain against the U.S. dollar, rising approximately 0.11 percent to trade around US $0.6474. This movement was largely driven by broad-based weakness in the greenback, as market sentiment shifted in response to growing expectations that the U.S. Federal Reserve may begin cutting interest rates in the near future. Recent U.S. economic data, particularly weaker-than-expected labour market figures and signs of slowing consumer activity, have fuelled speculation that the Fed’s aggressive tightening cycle is nearing its end. As a result, investor confidence in the U.S. dollar declined, prompting a shift into risk-sensitive currencies like the Australian dollar. Additionally, a broader increase in global risk appetite further supported commodity-linked currencies such as the AUD. While the gain was relatively small, it reflects a broader trend of renewed support for the Aussie amid shifting global rate expectations and improving investor sentiment.

The Australian dollar also remains sensitive to domestic developments, particularly monetary policy. Earlier this month, the Reserve Bank of Australia (RBA) lowered its benchmark interest rate by 25 basis points to 3.60%, citing weaker productivity growth and a subdued outlook for household consumption. The central bank also revised down its GDP forecasts and signalled that further easing may be appropriate if inflation continues to moderate. Meanwhile, recent Australian labour market data revealed signs of resilience, with steady unemployment levels and solid growth in full-time employment, suggesting underlying strength in hiring, despite broader economic headwinds.

On the data front yesterday, the Westpac-Melbourne Institute Consumer Sentiment Index showed a strong improvement in August, rising 5.7% to 98.5 from 93.1 in June, reflecting growing consumer optimism during that period. Notably, it has been 42 months since Australian consumers last recorded a Sentiment Index reading above 100 — marking the second-longest stretch of continuous pessimism since the survey began in 1974, surpassed only by the deep recession of the early 1990s. This prolonged period of consumer caution may finally be coming to an end, as August’s significant rise brings the Index within just 1.6% of returning to net positive territory.