AUD – Australian dollar strengthens amid improving risk appetite  

Key takeaways:  

• Improving market mood bolsters AUD 

• USD weakness boosts AUD appeal 

• AUD monthly lows: £0.50, €0.58, $0.64, NZ$1.08, C$0.89 

• AUD monthly highs: £0.51, €0.61, $0.68, NZ$1.10, C$0.91 

The Australian dollar (AUD) trended broadly higher throughout August as it was supported by positive risk flows and increased Reserve Bank of Australia (RBA) interest rate hike bets. 

At the start of the month, robust PMIs from both Australia’s and China’s services sector lent the ‘Aussie’ support. Due to AUD’s status as a proxy currency for the Chinese economy, news of expansion in the Chinese services sector boosted AUD sentiment. 

Following this, a hawkish interest rate decision by the RBA lent support to the Australian dollar. While the RBA left rates on hold in August, its forward guidance suggested that the bank is still open to hiking rates in the future. 

The following week, improving Australian consumer confidence initially lifted the ‘Aussie’, before signs of weakened business morale capped AUD’s upside potential. 

In mid-August, unemployment unexpectedly rose for a second successive month in July, dragging on the ‘Aussie’ before it was offset by a surprise uptick in Australian retail sales.  

Later, the publication of a more dovish-than-expected set of RBA meeting minutes weighed on AUD exchange rates. 

However, speculation that the Federal Reserve could enact multiple interest rate cuts in the coming months limited appeal for the safe-have US dollar, thereby boosting AUD amid speculation that the RBA would enact a significantly softer unwinding cycle than that of other major central banks. 

As the month closed, stronger-than-forecast services activity coupled with a stickier-than-expected Australian consumer price index boosted the Australian dollar against its rivals. 

Looking to the month ahead, any further hawkish signals from the central bank could lift AUD further against its rivals. With the RBA set to deliver its latest interest rate decision this month, any hawkish moves may boost the ‘Aussie’.