The Australian Dollar (AUD) extended its decline against the US Dollar (USD) for the fourth consecutive session on Friday, with the AUD/USD pair nearing two-year lows. Pressure on the currency intensified after ANZ Bank revised its forecast to predict a 25 basis point (bps) rate cut by the Reserve Bank of Australia (RBA) in February. Meanwhile, market participants turned their attention to U.S. labor market data, including Nonfarm Payrolls (NFP), for further clues on monetary policy direction.
China’s latest inflation data provided no relief for the AUD, highlighting persistent deflationary risks in Australia’s key trading partner. The Consumer Price Index (CPI) in China rose just 0.1% year-on-year in December, down from a 0.2% increase in November and in line with market expectations. On a monthly basis, CPI inflation was flat at 0%, following a 0.6% decline in November. As China is a significant export destination for Australia, any slowdown in Chinese economic activity often reverberates through Australian markets.
Domestic data also painted a mixed picture. Australia’s Retail Sales for November rose by 0.8% month-on-month, improving on October’s revised 0.5% increase. However, the figure fell short of the 1.0% growth expected by analysts, raising concerns about consumer spending momentum.
Adding to the AUD’s woes, Australia’s trimmed mean inflation—a key measure of core inflation—dropped to 3.2% annually from 3.5%, moving closer to the RBA’s target range of 2% to 3%. This has left markets divided over whether the central bank will cut rates in February. A 25 bps rate cut in April, however, has already been fully priced in by markets.
As traders brace for U.S. labor data that could shape the Federal Reserve’s next moves, the AUD remains vulnerable to both domestic and international factors, with looming monetary easing expectations pressuring the currency further.
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