NEWS / Fiscal Policy, Budget

Austraian dollar correction

The Australian dollar was unable to make a fresh push above 0.7665 in US trading on Monday and weakened back towards 0.7620 in local trading on Tuesday. Even if rates are increased to 6.0%, the Australian currency will find it difficult to draw further support from interest rate expectations, especially as markets are placing a 75% chance of a further rate increase to 6.25%. The Australian dollar will be vulnerable to significant selling pressure if rates are not increased or the bank suggests a further increase is unlikely. The PMI data was also disappointing and tighter global liquidity will pose longer-term risks. Overall, there is likely to be further selling interest above 0.7665 and corrections could extend to 0.7565 if the RBA is cautious over a further rate increase.