Australian Dollar Hits Weekly Low at 0.7180 as Reduced RBA Hike Bets Counter Softer USD

The Quick Take

• The AUD/USD pair refreshed a weekly low after fresh selling at the 0.7180 supply zone as reduced RBA rate hike expectations weigh on the Australian dollar
• Diminished rate hike bets for the Reserve Bank of Australia are the primary driver, more than offsetting a softer US dollar from Iran repricing
• FX Street notes the AUD faces technical resistance at the 0.7180 level, with downside bias persisting into the European session

The Australian dollar refreshed a weekly low against the US dollar after fresh selling emerged at the 0.7180 supply zone during European trading hours. FX Street attributes the AUD weakness primarily to reduced market expectations for Reserve Bank of Australia (RBA) interest rate hikes, which have been pared back following softer Australian economic data, more than offsetting any support from a broadly softer US dollar as Iran war tensions ease.

AUD weakness at 0.7180 has direct implications for Australian commodity exporters: a weaker AUD boosts earnings in local currency terms for BHP, Rio Tinto, and Fortescue, which sell iron ore and copper in USD. However, AUD depreciation raises import costs for Australian consumers and could push RBA's inflation concerns in a different direction. For China, a weaker AUD makes Australian commodity imports marginally less expensive in CNY terms.

Watch for the RBA June meeting (expected early June) and its language on the rate outlook — the market's repricing of hike expectations could reverse sharply if the RBA surprises with hawkish commentary. The macro variable: Chinese iron ore import demand from April trade data — the primary driver of AUD long-run fair value as Australia's largest commodity export destination.

Synthesized from 1 source.