AUD/USD jumped 0.85% on Friday to fresh cycle highs near 0.7180, pushed by a weaker US dollar rather than any hawkish shift from the Reserve Bank of Australia. The pair opened the week holding above 0.7160 as investors digest a heavy calendar of Australian data and Fed Chair Warsh's first Jackson Hole address.
A weaker dollar drives the move
The Australian dollar's climb turned into a sprint late last week, jumping 0.85% on Friday to fresh current leg highs near 0.7180. Unlike the rallies in January and February, this move isn't being driven by a hawkish Reserve Bank of Australia story or stretched positioning. Instead, support is coming from a weaker USD backdrop, rising gold prices, strength across Asian currencies and Australia's mining dividend season.
Treasury Secretary Scott Bessent's announcement to expand Treasury bond buybacks, combined with escalating sanctions rhetoric toward Iran, reinforced concerns around the long-term outlook for the US dollar and helped push AUD/USD to fresh cycle highs.
US bond yields have climbed sharply since March, with the 30-year bond yield reaching highs not seen since 2007, despite softer payrolls data and moderating inflation, which would normally support lower yields. Bessent's plan to double bond buybacks eased the immediate pressure on long yields, but the relief proved short-lived. Investors are demanding a higher risk premium to hold US assets amid geopolitical tensions and rising government debt, with US public debt reaching more than $40 trillion for the first time.
Gold and Bitcoin both rallied as investors sought alternatives to US assets, and the USD traded to a multi-month low of 98.55. The Australian dollar starts the week holding onto Friday's gains, sitting above 0.7160. AUD-crosses were mixed: AUD/NZD fell 0.36% over the week to near 1.1990. AUD/JPY rose 0.8% to around 113.90, while AUD/EUR held flat at 0.6130.
Australia's labour market keeps cooling
Australia's labour market showed further signs of cooling in July. Employment declined and unemployment edged up to 4.5%, with hours worked softening as businesses appear to be reducing hours rather than headcount.
Wage growth also remained contained in Q2, with annual growth slowing to 3.2% as private-sector wage pressures eased. Meanwhile, China's economy lost momentum in July, with industrial production, retail sales and investment all slowing, adding to expectations that policymakers may need to deliver further stimulus in the months ahead.
What markets are watching this week
A busy week lies ahead, with Australia's July CPI, the RBA's August meeting minutes and key GDP partials due, though they're likely to play second fiddle to Fed Chair Warsh's keynote speech at the Jackson Hole Symposium. Consensus expects July trimmed mean CPI to print at 3.5% year-on-year, with lower electricity prices offsetting higher travel and fuel costs.
RBA Governor Bullock told reporters at the August press conference that the board discussed the case for a hike, so markets will look to the minutes for further insight. Bessent will also unveil a new fiscal initiative this week, though the source notes this likely does little to reassure investors given deficits remain structural with no legislative path to address them.
Source: ActionForex
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