Australian dollar nears three-week low

The Australian dollar weakened to below 0.645 U.S. dollars on Wednesday, marking its third straight session of losses and touching its lowest level in nearly three weeks, as the greenback continued to regain strength ahead of key U.S. events.

Traders turned cautious in the run-up to the release of the Federal Reserve’s July meeting minutes and Fed Chair Jerome Powell’s speech at the Jackson Hole symposium later this week. The market is currently pricing in an 85 percent probability of a September Fed rate cut, with roughly 54 basis points of easing expected by year-end, leaving scope for either two smaller moves or a larger 50-basis-point cut.

On the domestic front, sentiment data offered a rare bright spot. Consumer confidence jumped to its highest level in nearly four years, supported by the Reserve Bank of Australia’s third rate cut of 2025, which lowered the cash rate to 3.6 percent.

The increase in sentiment suggests households are responding positively to easier borrowing conditions, though it remains to be seen whether this optimism translates into stronger spending and investment. The policy easing also provides relief to heavily indebted mortgage holders, a significant factor for Australia’s consumption-driven economy.

Nonetheless, financial markets continue to anticipate further RBA easing. Forward curves imply a high probability of another cut by November, which would reduce the cash rate to around 3.35 percent. Some forecasters even see scope for two or three additional reductions before year-end, depending on how quickly inflation moves back toward target and whether growth momentum weakens further. These expectations have capped any upside for the currency, despite the rebound in confidence.

Commodity dynamics add another layer of complexity. While iron ore prices have shown some resilience on reports of Chinese production curbs and modest infrastructure spending, global demand for other key Australian exports such as coal and LNG remains uneven. This divergence has limited support for the Aussie from the terms of trade channel.

Looking ahead, investors will closely monitor upcoming PMI releases, which will provide an early gauge of Australia’s economic momentum in the third quarter. The readings will be particularly important for assessing whether the pick-up in consumer sentiment is being matched by improvements in business activity. At the same time, external conditions—especially the outcome of the Jackson Hole discussions and any shifts in global risk appetite—will remain decisive drivers for the currency in the near term.