The Australian dollar (AUD) is struggling against other currencies, currently sitting at 0.6945 in European trading, which is a 0.8% decline against the US dollar (USD). Antipodean currencies are experiencing significant sell-offs as risk sentiment shifts amidst expectations of at least two interest rate hikes by the U.S. Federal Reserve this year.
As of now, S&P 500 futures are down 1.36%, hovering around 7,370, indicating a cautious mood in the market. The U.S. Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, has risen by 0.2% to about 101.20, achieving its highest point in a year.
Analysts from Bank of America (BofA) are projecting that the Fed will increase interest rates three times, raising them by 25 basis points (bps) in September, October, and December. This marks a notable shift from previous expectations that rates would remain steady this year.
BofA commented, “The data doesn’t support a rate cut this year. Core inflation remains too elevated and continues to rise. The strong jobs report from April was a critical indicator, especially given the Federal Reserve’s recent statements.”
On the home front, investors are keenly awaiting the release of the consumer price index (CPI) and employment figures for May, scheduled for Wednesday and Thursday respectively. There’s a heightened focus on inflation numbers following the softer data from April, which led the Reserve Bank of Australia (RBA) to reassess its previous hawkish stance.
The upcoming report from the Australian Bureau of Statistics is anticipated to show a year-on-year inflation increase of 4.4%, up from the prior reading of 4.2%. Monthly inflation data is expected to be -0.3%, compared to 0.4% recorded in April.
Meanwhile, employment data due on Thursday is likely to indicate a drop in the unemployment rate to 4.4%, down from 4.5% in April.
