Australian Dollar Weakens After China CPI, Market Eyes Fed Signals
The Australian Dollar (AUD) extended its decline on Wednesday, marking a second straight day of losses against the US Dollar (USD). The AUD/USD pair struggled to recover even after the recent US Nonfarm Payrolls benchmark revision boosted expectations that the Federal Reserve could start cutting interest rates as early as next week. A stronger greenback kept the Aussie under pressure.
AUD sentiment deteriorated further following the release of China’s Consumer Price Index (CPI). August CPI fell 0.4% year-over-year after registering 0% in July, worse than market expectations of a 0.2% drop. On a monthly basis, inflation was flat at 0%, compared with a 0.4% increase in July. The weak data highlighted concerns over China’s fragile economic recovery, weighing heavily on the Australian currency given the close trade ties between the two nations.
However, AUD losses are expected to remain limited thanks to Australia’s solid July trade surplus, stable Q2 GDP data, and hotter-than-expected July inflation. These factors have lowered expectations of a near-term rate cut by the Reserve Bank of Australia (RBA). Current swaps show an 84% probability that the RBA will hold rates steady in September. Still, policy easing remains on the horizon. Westpac’s Head of Australian Macro-Forecasting, Matthew Hassan, projects a 25-basis-point cut in November, followed by two more reductions in 2026, citing weak consumer sentiment.
Market focus now shifts to upcoming US inflation data. The August Producer Price Index (PPI) is due Wednesday, followed by the Consumer Price Index (CPI) on Thursday, which could provide further clarity on the Federal Reserve’s rate outlook.
Source: Newsmaker.id
