Monthly Wrap: AUD – Australian dollar fluctuates higher as risk appetite returns 

Key takeaways: 

• Shifting risk appetite infuses AUD with volatility 
• Signs of sticky Australian inflation boost the ‘Aussie’  
• AUD monthly lows: £0.51, €0.60, $0.63, NZ$1.08, C$0.87 
• AUD monthly highs: £0.52, €0.61, $0.66, NZ$1.10, C$0.90 

The Australian dollar weakened in early April as a souring market mood weighed heavily on the risk-sensitive ‘Aussie’. 

Stronger-than-forecast US inflation caused markets to scale back bets on multiple interest rate cuts from the Federal Reserve this year, which dampened global risk appetite. 

Escalating tensions in the Middle East also rattled investors. Iran launched its first-ever direct attack on Israel after an alleged Israeli strike on the Iranian embassy in Damascus. 

However, the flare-up of tensions soon died down and risk appetite returned to markets. Weaker US data also helped to cheer investors. 

The Australian dollar also received a boost later in April as Australian inflation cooled less than expected in the first quarter of 2024. Producer price inflation also exceeded forecasts, sparking speculation that the Reserve Bank of Australia (RBA) may have room for more interest rate hikes. 

At the beginning of May, however, the RBA left rates unchanged and indicated that they may have peaked. This trimmed AUD’s gains. 

Looking at the month ahead, RBA bets could continue to influence the ‘Aussie’. The RBA’s meeting minutes are due out in the second half of May, where any dovish signals from the bank could pile pressure on AUD. 

In early June, Australia’s GDP figures for the first quarter of 2024 will be the focus. An expected acceleration in growth could boost the ‘Aussie’. 

Meanwhile, risk appetite is likely to continue infusing the currency with volatility. If Israel and Hamas agree a ceasefire, a risk-on turn in markets could see the Australian dollar surge. However, if Israel presses ahead with its attack on Rafah then the mood could sour and weigh on AUD.