The Australian dollar fell below 71c on Friday, a level not seen since 2016 when oil fell to around $30p/b. This time around, oil is healthy and trading at well over twice that price. So what has triggered the weaker Aussie?
Friday night saw the release of US employment data. The unemployment rate has been on a one way ride down, as jobs growth continues to keep pace with the strong US economy. If you are wondering why unemployment in the US has an effect on driving the AUD/USD exchange rate lower, it’s because part of the data release showed US wages lift to a 2.9% growth rate. It is this positive move which indicates inflation is just around the corner. Inflation spells higher interest rates, which (typically) strengthens that country’s currency as money crosses borders.
How low can the currency go?
In the short term, the Aussie / US exchange rate will be dictated by data due on Thursday. In Australia we have our labour market data, then overnight we have US inflation numbers, and the European Central Bank’s meeting. Conceivably, a higher core inflation print from the US (greater than the expected 2.4%) could see the Aussie dollar go below 70c.