Australian Dollar Weakens as Strong US Data Lifts the Greenback

Highlights:

• The Australian dollar fell to US65.33¢ at the time of writing, down from US65.75¢.
• The currency has fallen 0.8% since the start of the week, positioning it for back-to-back weekly losses.
• The three-year bond yield rose to 3.6%, the highest since May, climbing 18 basis points this week.

Currency under pressure after upbeat US figures

At the time of writing, the Australian dollar (AUD) had fallen from US65.75¢ to US65.33¢, as stronger-than-expected US economic data strengthened the greenback and dragged the Aussie lower. Having fallen 0.8% since Monday, the Australian dollar is poised for back-to-back weekly declines should the weakness continue. Analysts attributed the drop to investor expectations that the robust US data may delay anticipated rate cuts by the Federal Reserve, thereby strengthening the US dollar.

Bond yields hit multi-month highs

In the domestic bond market, yields rose in response to shifting global interest-rate expectations. The yield on the policy-sensitive three-year Australian government bond rose to 3.6%, its highest point since May. The yield has gained 18 basis points so far this week, representing the sharpest weekly increase since July. Rising yields often indicate expectations for tighter monetary policy or higher interest rates, which can add further headwinds to the Australian dollar.

Market outlook cautious

Economists suggest that the currency’s recent weakness reflects a cautious market mood amid lingering uncertainty over global monetary policy. If US economic strength persists and prompts the Federal Reserve to keep rates elevated for longer, the greenback could remain supported, potentially extending pressure on the Australian dollar. Investors will closely watch upcoming US inflation data and domestic economic indicators for signals on how the Reserve Bank of Australia (RBA) may respond to external pressures.

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