A sinking Australian dollar could drive petrol prices higher and rekindle domestic inflationary pressures, putting Reserve Bank interest rate relief potentially further out of reach.

Coming off a 9 per cent annual decline in 2024, the worst in six years, the Australian dollar traded around US62¢ on Sunday after the Chinese yuan dropped sharply against the greenback earlier last week. The Australian currency is regarded as a proxy for China’s growth and tends to fluctuate with China’s fortunes.