Australian dollar slides to 3-week low as stronger US dollar and China concerns weigh on sentiment
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Daily Currency Update
Over the past 24 hours, the Australian dollar (AUD) has continued its downward trajectory against the US dollar (USD), falling by approximately 0.3% to around US$0.6435 a level not seen since early August. The decline reflects a broader sentiment trend ahead of the Jackson Hole Economic Symposium, where US Federal Reserve Chair Jerome Powell is expected to give key insights into the likely trajectory of interest rates. Expectations that the Federal Reserve (Fed) will maintain higher rates for longer to control inflation have strengthened the US dollar, making it more attractive to investors seeking yield, and consequently placing downward pressure on risk-sensitive currencies like the AUD.In addition to US monetary policy, China’s slowing economy continues to weigh heavily on the Australian dollar. As Australia's largest trading partner, particularly for iron ore and other raw materials, any signs of weakness in Chinese demand have a direct negative impact on the Aussie. Recent data from China, including weak industrial production and sluggish retail sales, have reinforced fears of a broader slowdown, prompting traders to trim exposure to currencies tied closely to the Chinese economy.
Despite these headwinds, the AUD's losses have been moderate rather than extreme, suggesting that traders are still awaiting clearer signals from both the Federal Reserve and Beijing before making more aggressive moves. In this environment, the Australian dollar remains vulnerable to further downside if US interest rate expectations rise or if Chinese economic data continue to disappoint. However, any signs of stimulus from Chinese authorities or a shift in Fed rhetoric could provide a floor for the AUD in the near term.
Key Movers
Overnight, the US Dollar Index (DXY) continued its upward trend, strengthening for the third straight session and reaching a 1-week high. This rise reflects growing market anticipation ahead of the Federal Reserve’s annual Jackson Hole Economic Symposium, where investors expect Fed Chair, Jerome Powell, to provide key insights into the central bank’s future monetary policy. The prevailing sentiment is that the Fed will maintain higher interest rates for a longer period to combat persistent inflation, which supports demand for the US dollar as a safe-haven and yield-bearing asset.The stronger US dollar was evident against a broad range of major currencies, including the euro, pound, and commodity-linked currencies such as the Australian and New Zealand dollars. This broad-based appreciation is partly driven by the widening interest rate differential between the US and other economies, making the USD dollar more attractive to global investors. Moreover, geopolitical uncertainties and mixed global economic data have contributed to a risk-averse environment, further boosting demand for the USD.
The US dollar’s strength has had ripple effects across other financial markets. For example, gold prices fell to a near three-week low, as a stronger US dollar makes dollar-denominated commodities more expensive for holders of other currencies, dampening demand. Similarly, emerging market currencies and equities have experienced increased volatility as capital flows gravitate towards the relative safety of the US dollar. Looking ahead, the market will closely watch the Jackson Hole symposium for any signals that could either reinforce or reverse the recent US dollar rally, making this event pivotal for currency and broader financial market trends in the near term.
Expected Ranges
- AUD/USD: 0.6300 - 0.6500 ▼
- AUD/EUR: 0.5400 - 0.5600 ▼
- GBP/AUD: 2.0900 - 2.1100 ▲
- AUD/NZD: 1.0900 - 1.1100 ▲
- AUD/CAD: 0.8800 - 0.9000 ▼