The Australian Dollar has continued to fall against the US Dollar for the sixth day in a row. And this at a time when inflation expectations in Australia have risen. Australians expected prices to increase by 4.7% in December, up from 4.5% in November. Inflation typically supports a currency because it can push the central bank to raise interest rates.
Many banks now believe the Reserve Bank of Australia (RBA) could increase interest rates as early as February to control inflation. However, this expectation has not been enough to stop the Australian Dollar from losing value.
Strong US Dollar Puts Pressure on AUD
One of the main reasons for the AUD’s weakness is the USD’s strength. The USD is riding on hopes that the US Fed will remain in a holding pattern for the foreseeable future. The latest U.S. data suggest the job market is slowing, but has not yet weakened significantly enough to prompt swift rate cuts.
Traders await fresh US inflation figures, and the data are expected to support the greenback. This is driving money into the US dollar, and investors are selling Australian dollars to get greenbacks.
What This Means for Tradrs
In a nutshell, a weaker AUD can potentially make imports more expensive and exports cheaper. Australia is expected to hike rates sooner rather than later, but what matters more now are global factors (especially USD strength) for the Aussie dollar.
