The Australian dollar is under pressure after weak Chinese and domestic labour data, with analysts warning the RBA rate-hiking cycle may be over, removing a key support for the currency.
Summary:
Source: Commerzbank
The Australian dollar is under mounting pressure after pulling back sharply from a four-year high, with analysts now questioning whether the Reserve Bank of Australia has finished raising interest rates altogether.
The currency climbed to 0.726 against the US dollar last week, its strongest level in four years, before a run of discouraging data began to chip away at the advance. Weak Chinese economic readings at the start of the week delivered the first blow. Then, on Thursday Australian time, domestic labour market data landed softer than many had hoped, reinforcing the sense that conditions in Australia are beginning to cool.
For much of the recent period, the AUD had drawn clear support from the RBA’s unusually assertive stance. While other G-10 central banks have adopted a cautious, wait-and-see approach in the face of the Iran conflict and the renewed inflation it has stoked, the RBA moved decisively, delivering three consecutive rate increases. That divergence gave the Australian dollar a distinct advantage and attracted flows accordingly.
But Commerzbank analysts now suggest that advantage is being eroded, noting
- A speech this week by RBA Chief Economist Sarah Hunter was notably less hawkish than her recent communications had been.
- Minutes from the central bank’s latest monetary policy meeting, released Tuesday, reinforced the impression that policymakers are leaning toward a pause, preferring to allow the cumulative effect of their tightening to work through the economy before moving again.
The question is whether that pause becomes a full stop. Labour market data is notoriously volatile from month to month, and reading too much into a single set of figures carries its own risks. But the signals are accumulating. If the RBA’s rate-hiking cycle has genuinely run its course, the currency loses the policy premium that has sustained it, and the AUD faces a less supportive environment in the months ahead.
With Chinese demand already softening and domestic momentum showing cracks, the burden of proof is shifting. The four-year high reached last week may, in retrospect, mark the peak of the policy-driven rally.
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The Australian dollar faces a more challenging backdrop after retreating from its recent four-year peak above 0.726. The prospect of a prolonged RBA pause, or an outright end to the tightening cycle, removes a key pillar of AUD support that has distinguished it from other G-10 currencies in recent months. Further weakness in Chinese economic data would compound the pressure, given the sensitivity of the Australian economy to demand from its largest trading partner.
