Monthly Wrap: AUD – Australian dollar weakens amid US inflation concerns

Philip McHugh May 20th 2021 - 2 minute read

Key Takeaways:

  • AUD weakens on increased risk aversion and strong US inflation
  • Will the RBA keep a more dovish tone ahead of its latest rate decision?
  • AUD Monthly lows: £0.54, €0.63, $0.76, C$0.93, N$1.07
  • AUD Monthly highs: £0.56, €0.64, $0.78, C$0.97, N$1.08

 
The Australian dollar had spent the last month performing relatively well against many of its major rivals.
 
The Reserve Bank of Australia (RBA) kept interest rates at 0.1%, whilst acknowledging Australia’s recovery from coronavirus.
 
However, concerns over the global coronavirus situation and a rise of cases and deaths stemming from the Indian variant of the virus has pushed investors away from the risk-correlated ‘Aussie.’
 
Market sentiment also turned more cautious on a surge in US inflation which rose to its highest level since 2008.
 
The rise in US inflation caused markets to question whether the Federal Reserve would raise interest rates sooner than expected.
 
In addition, market risk sentiment continues to fall following the recent violence between Israel and Palestinians, with no end to the conflict in sight.
 
Whilst Australian data continues to be positive and has shown a broader economic resilience from the country, the Australian Dollar struggled to hold its ground coming into May.
 
Australian data has continued to impress investors, with retail sales re-entering growth territory and business confidence increasing 8 points during April.
 
Key Australian data to keep an eye out for in the coming weeks includes Australian employment data and flash PMIs due towards the end of this week.
 
Australian GDP growth could also drive AUD movement at the start of June, with continued growth in the first quarter likely to support the Australian Dollar.
 
With the latest RBA meeting minutes reporting that ‘future policy decisions would be based on close attention to the flow of economic data and conditions in financial markets in Australia’, the next interest rate decision at the start of June could drive AUD.
 
Investors will look to see if the bank takes a more hawkish tone following the more positive, consistent economic data, or decide to continue its dovish outlook for the country’s recovery in the coming months.
 

Written by
Philip McHugh

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