The Australian Dollar has marked losses for the second day in a row due to disappointing domestic consumer prices, leading the Reserve Bank of Australia (RBA) to consider a softer interest rate approach. The country’s economic outlook is now dimmer, with February 2024 seeing only a 3.4% rise in Australia’s Month-on-Month Consumer Price Index (YoY), the lowest figure since November 2021.
As a result, the Australian Dollar is under increased pressure in an economic climate fraught with fear of inflation. The government and relevant authorities need to act decisively to restore confidence in the Australian Dollar and reverse the ongoing downturn.
Westpac’s Consumer Confidence figures for March 2024 have dropped 1.8% to 84.4–increasing challenges for the Australian Dollar–from February’s high figure. This decline suggests that household spending, which makes up a significant part of Australia’s economy, is weakening. This may lead to an economic slowdown as spending patterns are intrinsically linked with overall economic performance.
In light of the country’s financial situation, investors may become more hesitant to back the Australian Dollar, potentially causing its value to depreciate more. With increasing global uncertainties and domestic economic worries, pressure is likely to increase on the Australian Dollar in the months to come.
On the other hand, the USD is showing growth, supported by speculation surrounding the US Personal Consumption Expenditures (PCE) release.
Australian dollar dented by consumer price concerns
Yet, falling US Treasury yields fueled by rumors of a possible US Federal Reserve interest rate cut could limit further USD appreciation. Thus, any predictions concerning its impending trajectory could potentially be disrupted by sudden shifts in the global economic environment.
In response to escalating living costs for lower-income families, Australia’s government plans to raise the minimum wage this year. Following a small rise in the Westpac Leading Index (MoM) in February, the proposal aims to enhance the financial stability of households facing economic distress. This measure attempts to prevent the income inequality gap from widening further.
In current trade, the Australian Dollar is approximately 0.6520, with key support at 0.6500 and immediate resistance at the 23.6% Fibonacci retracement level at 0.6541. Potential challenges, such as political factors, economic indicators, and global market sentiment, can all contribute to fluctuations in the AUD’s value. Therefore, keep these aspects in mind when trading or investing in AUD.
