Commerzbank’s Volkmar Baur notes the Australian Dollar has retreated from a four-year high versus the US Dollar as weak Chinese data and soft domestic labor figures weigh. He highlights rising unemployment and fading support from the Reserve Bank of Australia’s earlier rate hikes, with policymakers now leaning toward a pause. Baur warns AUD support could taper if the hiking cycle is already over.

Weak jobs and RBA pause pressure AUD

"The Australian dollar has been on the defensive this week after climbing to a four-year high against the US dollar at 0.726 last Wednesday. But weak data on the Chinese economy at the start of the week dealt the first blow, and now labor market data released early this morning show that things aren’t going so well at home either."

"In recent months, the AUD has benefited significantly from the Reserve Bank of Australia’s policy shift. While other G-10 central banks are still adopting a wait-and-see approach to the Iran conflict and rising inflation, the RBA has already raised interest rates three times in its last three meetings. However, the supportive effect these rate hikes have had on the AUD is likely to gradually fade."

"In a speech this week, RBA Chief Economist Sarah Hunter sounded less hawkish than she had in recent months, and - based in part on the minutes from the latest monetary policy meeting released on Tuesday - it appears that the Australian central bankers are currently leaning toward a pause. They now want to wait and see and let the rate hikes take effect first."

"Now, as mentioned, labor market data is quite volatile, and one shouldn’t overinterpret a single month’s figures. But signs are slowly mounting that the RBA may not just be taking a pause, but that this rate-hiking cycle has already come to an end. In that case, support for the AUD would taper off, and the AUD could come under pressure going forward."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)