What’s going on with the US dollar vs. Australian dollar (AUD/USD)?

The Australian Dollar (AUD) has been navigating a downward trajectory against the US Dollar (USD), marking a decline exceeding 6% since the year’s onset. 

Two pivotal factors have propelled this descent. The first one involves the resilience of the US economy, which has forced the Federal Reserve to remain in a hawkish stance and push the federal funds rates to the highest range in 22 years. 

In stark contrast, the Reserve Bank of Australia has been significantly less belligerent, with the official cash rate sitting at 4.35%. In turn, this has weakened the Aussie, particularly against its US counterpart.

This bearish sentiment persisted on November 14, as the AUD faltered to 0.63 against the USD, spurred by a mixed set of fresh economic data from Australia.

What’s causing the AUD’s latest decline?

The most recent downswing in the Australian dollar comes in the wake of the country’s new economic data, which failed to boost traders’ sentiment.

While the country’s business conditions remained stable in October, consumer confidence declined after the Reserve Bank of Australia hiked rates last week. 

In particular, the survey conducted by the National Australia Bank (NAB) showed its index of business conditions rose 1 point to +13 last month, while confidence fell by 2 points to -2. 

Meanwhile, labor cost growth and purchase costs edged lower to a quarterly rate of 1.8%, while the retail price growth rate kept steady at 1.9%. Still, overall price growth declined by 1%, the lowest since mid-2020. 

What’s next for AUD/USD?

The economic data coming from Australia clearly made an impact on the AUD/USD pair, however, most of the foreign exchange (forex) market’s attention is focused on the US inflation figures due later on Tuesday. 

Recent statements by the Federal Reserve’s chair Jerome Powell contradicted broader market expectations that the central bank’s aggressive rate-hiking campaign is over. Although the Fed left the rates unchanged at the latest meeting, Powell left the door open for future raises if necessary. 

“We need to wait for that CPI number tonight, which could be a bit of a shaker. If it’s strong, then obviously it brings in the idea that another rate hike from the Fed is possible.”

– said NAB’s senior FX strategist Rodrigo Catril. 

The headline inflation rate in the US for October is projected to show a continued drop in inflation, primarily because of easing energy prices. Notably, the economists see the overall CPI slipping to 3.3% in October from 3.7% in September, although the core inflation rate is expected to show more resilience. 

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