Australian Dollar Weakens; RBA Keeps Door Open for Rate Hikes
The Australian dollar weakened during Friday's trading (August 14), with the AUD/USD pair hovering around 0.7060. This downward pressure persisted even though the Reserve Bank of Australia (RBA) maintained the possibility of further interest rate hikes should inflation risks resurface.
RBA Assistant Governor Chris Kent noted that previous rate hikes are beginning to impact the economy. Higher borrowing costs, rising mortgage repayments, a softening property market, and slowing demand indicate that tight monetary policy is effectively curbing inflation.
Nevertheless, the decline in the AUD/USD pair was tempered by the US dollar losing momentum. US producer inflation data showed the Producer Price Index (PPI) remained unchanged month-on-month in July, falling short of the anticipated 0.2% rise. Core PPI also rose by only 0.2%, below the 0.3% consensus forecast.
These figures further dampened expectations for a Federal Reserve rate hike in September. Markets now estimate the probability of a Fed hike at approximately 34.8%—down from around 40% prior to the PPI release—placing increasing pressure on the US dollar.
Investor focus now shifts to US retail sales data due for release on Friday. Consumption data exceeding forecasts could provide renewed support for the dollar, whereas weak retail sales figures could further suppress expectations for a Fed rate hike.
Newsmaker Analysis: The AUD/USD pair is currently caught in a tug-of-war between the RBA—which retains the option for rate hikes—and a US dollar weakened by cooler producer inflation data. As long as expectations for a Fed hike continue to decline, downward pressure on the Australian dollar may remain limited. However, US retail sales data will serve as the next catalyst, potentially determining whether the AUD/USD pair can rebound or if the correction will continue. (asd)*
Source: Newsmaker.id
