Australian dollar falls to a two-week low as US equity markets sink

The Australian dollar has fallen to a two-week low, closely tied to the deterioration in risk appetite reflected in the stock markets, particularly among tech companies. Year-end profit taking or a reassessment around AI traders may be influencing this trend. The AUD/USD pair is typically a barometer for risk sentiment, evident in today's price movements. Since late November, AUD has performed well, climbing from 0.6420 to 0.6680. However, it has consolidated within the 0.64-0.67 range since May, indicating a search for broader signals on growth. Resilience in Australian inflation has meant the RBA is no longer contemplating rate hikes, with the market pricing in potential hikes in H2 of next year. China’s weak retail data and struggling housing market pose downside risks for the AUD, as sluggish consumer spending dampens demand for Australian exports and mineral prices. Moreover, the ongoing standstill in the US-China trade war, with the potential for tariffs, adds uncertainty. Overall, the market appears stable within the 0.64-0.67 range, retreating from the upper end, while caution is warranted amid equity market volatility into the new year.