Aussie dollar set for second weekly drop

The Australian dollar was little changed around $0.642 on Friday, pausing its four-session losing streak but still on track for a 1.3% weekly decline, its second straight weekly drop.

The currency remained under pressure from a firmer US dollar, which is headed for a solid weekly performance as investors braced for Federal Reserve Chair Jerome Powell’s Jackson Hole speech that could help set the near-term path for US interest rates.

Earlier in the week, softer US labor data had fueled speculation about aggressive rate cuts, but more cautious Fed remarks, coupled with still-sticky inflation, have left markets now leaning toward a smaller September move. Traders currently assign about a 75% chance of a quarter-point cut, with a larger reduction looking less likely.

On the domestic front, the Reserve Bank of Australia remains in focus. Markets are nearly fully priced for another 25 basis point cut in September, which would bring the cash rate down to 3.35%. Further easing is also anticipated into year-end, with expectations that the policy rate could fall toward 3.10% as policymakers attempt to support growth in the face of external headwinds.

Still, the latest economic data have offered some support for the Aussie. Business activity picked up markedly, with manufacturing accelerating to 59.2 in August and services climbing to 55.1 from 54.1 the month before, signaling that domestic demand remains more resilient than anticipated.

Globally, the Australian dollar’s moves remain closely tied to commodity market dynamics and risk sentiment. While iron ore prices have rebounded slightly on less severe Chinese steel output cuts than expected, concerns linger about weak demand from China’s property sector and infrastructure spending.

Against this backdrop, the Aussie has lagged some of its commodity-linked peers like the Canadian dollar, which energy prices have better supported. Investors now await both US monetary policy guidance and upcoming Australian PMI data to gauge whether the Aussie can stabilize or faces further downside pressure.