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Highlights
- Australian dollar sees significant drop in October due to rising US Treasury yields.
- Quarterly data reveals mixed inflation results, influencing Reserve Bank expectations.
- Currency's value dips to lowest point since August, underscoring economic pressures.
The Australian dollar (AUD) has experienced a steep decline this October, dropping over 5 percent and setting it on track for the largest monthly decline since 2022. This notable drop can be attributed to rising US Treasury yields, which have boosted the US dollar as global markets adjust ahead of the upcoming US elections. The shift has prompted investors to favor the dollar amid heightened anticipation of future US economic policies and market trends. As a result, the Australian dollar now sits at around US65.54¢, marginally above the recent low of US65.43¢ recorded on Tuesday, marking its lowest level since August.
A key element contributing to this decline is the complex economic data released this quarter, which has shown mixed signs regarding inflation. Data published on Wednesday indicated that headline inflation for the third quarter slowed slightly more than expected, offering a temporary sense of relief on the surface. However, core inflation, the measure preferred by the Reserve Bank of Australia (RBA) for assessing underlying economic stability, increased by 0.8 percent over the quarter, just exceeding projections of 0.7 percent. This annual core inflation rate eased to 3.5 percent from 4 percent in June, yet it remains significantly above the RBA’s target range of 2 to 3 percent.
The RBA closely monitors these inflation indicators when setting its monetary policy, and the latest data may compel the bank to reconsider its strategies in the months ahead. The persistent inflation rate above target levels suggests that domestic economic pressures are still strong, despite the easing headline inflation figure. However, with the currency facing intense downward pressure from global factors such as the stronger US dollar, domestic monetary adjustments could face limitations in effectively stabilizing the Australian dollar in the near term.
The currency’s recent performance highlights the impact of both local and international economic factors on Australia’s economy. The continued strength of the US dollar, bolstered by rising US Treasury yields, has applied additional pressure on the Australian dollar. Meanwhile, local inflation dynamics introduce complexities for policymakers as they attempt to balance domestic economic growth with inflation control.
As the month draws to a close, the Australian dollar's performance illustrates the global interconnectedness of currency markets and the significant influence of US economic trends on other economies.
