The Australian dollar slipped to around $0.69, its lowest level in eleven weeks, as a stronger US dollar and surging US Treasury yields weighed on the currency. Sentiment toward the Aussie also softened as investors scaled back expectations for another near-term rate hike from the Reserve Bank of Australia. Markets now assign only a 20% probability to a November increase, down from 36%, after August inflation data came in slightly below forecasts. The next move higher in rates is currently viewed as more likely in March than in February.
Australia’s latest trade figures further pressured the currency, with the trade surplus narrowing to its smallest level in three months. The Aussie ended the previous month down 3.1%, reflecting both broad-based US dollar strength and persistent geopolitical tensions in the Middle East.
The US dollar index climbed to its highest level in nearly 18 months, despite diminished expectations of another Federal Reserve rate hike this month. The rally in the greenback has been underpinned by a sharp rise in US Treasury yields to multi-decade highs, driven by concerns that energy-related price pressures will keep inflation elevated. Oil prices remain high as negotiations between the US and Iran make little headway, even as there are tentative signs of recovering crude flows from the Middle East.
