Australian dollar softens as risk sentiment slips
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Daily Currency Update
The Australian dollar is starting the day on a weaker note, trading around US$0.6469 at the time of writing. The currency has been under pressure as global risk sentiment takes a noticeable step back, and investors shift toward a more cautious outlook. Much of this change in mood is coming from a pullback in equity markets, where concerns about high valuations—especially within the fast-growing artificial intelligence sector—are prompting traders to reassess their appetite for risk. When global markets wobble, currencies that depend heavily on global growth and commodity demand, like the Australian dollar, often feel the impact more quickly. Australia’s strong exposure to iron ore, coal, and liquefied natural gas exports tends to help during periods of robust economic activity, but it also means the currency can struggle when investors grow nervous about the broader economic outlook. This is very much what we’re seeing now: a general retreat from cyclically sensitive assets and a move toward safer options is putting the AUD on the defensive. On the domestic front, the latest data offered few surprises but did provide a sense of stability. Australia’s Wage Price Index rose 0.8% in the third quarter, exactly as economists anticipated. Annual wage growth held steady at 3.4%, suggesting that while wages are increasing, the pace is not accelerating in a way that would push inflation sharply higher. This steadiness is important because wage pressures are a key factor the Reserve Bank of Australia watches closely when assessing the persistence of inflation. These figures support the view that inflation in Australia, while still elevated, is not spiralling and may continue to ease gradually. That gives the RBA room to move carefully rather than rushing into further interest rate changes. This sentiment was echoed in the RBA Minutes released on Tuesday, which pointed toward a more balanced and measured policy stance. Policymakers signalled that if the incoming economic data remain consistent, the current Cash Rate could stay unchanged for an extended period. For households and businesses, this steadier policy outlook may offer some relief after a period marked by rapid rate increases. For currency markets, however, it removes a potential source of support for the Australian dollar, especially when compared with a still-firm US dollar backed by strong economic performance and higher yields. Altogether, the combination of softer global sentiment, steady domestic wage growth, and a patient RBA is shaping a quieter, more cautious environment for the AUD. As always, the days ahead will depend on how global markets digest shifting economic narratives, particularly around technology stocks and broader risk appetite.Key Movers
The US dollar is enjoying a period of steady strength, with the US Dollar Index (DXY) holding close to recent highs as investors reassess the likelihood of interest rate cuts from the Federal Reserve. After several months of shifting expectations, markets are now leaning toward a more cautious outlook, tempering earlier assumptions that the Fed would begin easing policy before the end of the year. This shift has given the dollar a firm footing, especially as global uncertainty continues to lift demand for safe-haven assets. A key driver behind the dollar’s resilience has been the steady flow of US economic data, which continues to paint a picture of a labour market that, while cooling, remains healthier than many anticipated earlier in the year. Job creation has moderated from its peak, and wage growth has slowed to a more sustainable pace. Yet these developments have not been enough to signal that the economy is losing momentum rapidly, reducing the urgency for the Fed to deliver swift or aggressive rate cuts. All eyes are now on the upcoming Nonfarm Payrolls (NFP) report for September, scheduled for release on Thursday. Markets see this as a crucial checkpoint for confirming whether the labour market is cooling at a pace consistent with returning inflation to the Fed’s 2% target. Stronger-than-expected job growth could reinforce the Fed’s cautious stance, extending the dollar’s support. On the other hand, a notably weak print might revive the case for a December rate cut, though most traders acknowledge that one set of numbers is unlikely to prompt a dramatic shift in policy expectations. At the moment, the CME FedWatch tool shows a 49% probability of a 25-basis-point rate cut at the December meeting—a notable retreat from the 67% probability priced in just a week ago. This swing highlights how sensitive markets remain to both incoming data and changing narratives around inflation and financial conditions. It also reflects a growing sense that the Fed may prefer to wait for clearer evidence that inflation pressures are easing in a durable and broad-based way before taking action. These shifting expectations have broader implications across global currency markets. With other central banks either signalling readiness to ease or already beginning their cutting cycles, the relative policy advantage has tilted back toward the US. As long as the Fed maintains its steady, data-dependent approach, the dollar is likely to remain supported, especially in periods when risk sentiment weakens. For now, investors are largely in “wait-and-see” mode. The upcoming jobs report will offer valuable guidance, but the bigger picture remains one of cautious optimism: an economy still growing, inflation gradually cooling, and a central bank in no rush to pivot.Expected Ranges
- AUD/USD: 0.6350 - 0.6550 ▼
- AUD/EUR: 0.5500 - 0.5700 ▼
- GBP/AUD: 2.0100 - 2.0300 ▲
- AUD/NZD: 1.1450 - 1.1650 ▲
- AUD/CAD: 0.9000 - 0.9200 ▲