The Australian Dollar (AUD) has experienced a decline of around 3.5% against the US Dollar (USD) since July 12, positioning it as one of the weaker G-10 currencies in recent times. This depreciation can be attributed to a couple of key factors that have a direct effect on Australia, according to Commerzbank’s FX analyst Volkmar Baur. Despite recent labor market data being the only significant new information regarding the Australian economy, it has not been supportive of the Aussie dollar. The resilience of the Australian economy in creating more jobs post-pandemic has tightened the labor market and set the stage for high wage growth.
On the other hand, the Australian Dollar has been facing challenges from China. A combination of weak economic indicators, underwhelming outcomes from the Third Plenum, and the absence of anticipated stimulus announcements following the July Politburo meeting has cast a shadow over the AUD. This is further exacerbated by the prevailing expectation of a deteriorating Chinese economy, leading to repercussions in the industrial metals market. The impact of these factors is magnified when reflecting on the current state of the Australian Dollar.
The outlook for the Australian Dollar in the near future hinges on key events that are set to unfold. The release of Australian inflation data early next week is expected to play a pivotal role in determining the next moves by the Reserve Bank of Australia. While inflation figures may offer some support to the Aussie, the upcoming purchasing manager indices from China could sway the currency in a different direction. These indices will shed light on the current economic sentiment in China, posing a significant influence on the future performance of the Australian Dollar.