Monthly Wrap: AUD – Australian dollar seesaws as RBA tightening cycle appears to end

Key takeaways: 

• Downbeat economic releases sap AUD 
• RBA leaves rates unchanged, denting the ‘Aussie’ 
• AUD monthly lows: £0.51, $0.63, €0.59, NZ$1.06, CA$0.87 
• AUD monthly highs: £0.52, $0.66, €0.61, NZ$1.08, CA$0.90 

The Australian dollar began the month on the back foot, despite the Reserve Bank of Australia (RBA) hiking interest rates by 25bps. Markets began to suspect that the RBA had now finished its tightening cycle, dampening AUD. 

Mixed labour data kept the pressure on AUD through the start of November. While 54,900 jobs were created in October, the unemployment rate still rose to 3.7%. 

Hawkish meeting minutes from the Reserve Bank of Australia (RBA), then triggered a rebound in the ‘Aussie’ in the middle of the month. Policymakers noted that the bank’s target of lowering inflation to 2% by 2025 was under pressure, boosting rate hike bets. 

Towards the end of the month, the ‘Aussie’ weakened as inflation decelerated at a faster-than-expected pace, although AUD exchange rates remained broadly supported by the continued depreciation of the US dollar. 

At the start of December, the RBA delivered its final rate decision of the year and kept interest rates unchanged as expected. Subsequent analysis of the RBA’s accompanying statement convinced AUD investors the bank’s tightening cycle was firmly over, triggering a sharp drop in the ‘Aussie’. 

Looking ahead through December, there is a wide range of potentially impactful data releases coming up for the Australian dollar. 

Michele Bullock, the RBA Governor, is due to deliver a speech early next week. If she maintains her hawkish bias, AUD could strengthen. 

Mid December brings the release of the latest unemployment data. Markets expect the rate to have held at 3.7% in November, which could lift the ‘Aussie’ by signalling robust employment. 

The RBA are set to publish their latest meeting minutes in mid-December. These minutes are likely to skew hawkish, but as markets believe the RBA is at the end of its tightening cycle, they could prove unispiring.