Aussie dollar falls on stronger than expected US job figures

The chances of an interest rate cut in early 2025 are falling faster than the Aussie dollar, with experts saying the drop in our currency could cause the Reserve Bank to baulk at a cut.

The Australian dollar is hovering around its lowest levels since the start of the Covid pandemic in 2020, as it continues to trade toward US 61 cents.

The weakening Aussie dollar could see import prices rise, adding further pressure on the Reserve Bank to keep the official cash rate on hold at 4.35 per cent at its February board meeting.

During trading on Monday, the Australian dollar fell to around 61.44 US cents, with the dollar falling nearly 9 per cent against the greenback in just the past three months – a sharp decline from above 69 US cents in late September.

The Aussie dollar has fallen in line with many of the Asian currencies and equities after stronger than expected US job figures were released over the weekend.

The Aussie dollar continues to trade down putting further pressure on import prices. Picture: NewsWire / Nicholas Eagar

EQ chief economist Warren Hogan told Sky News on Monday a lower Aussie dollar was “inflationary” and that could cause the RBA resist the growing pressure to cut rates.

“I think that’s the thing that’s going to worry them,” Mr Hogan said.

“It’s just another reason not to cut interest rates in February and I don’t think they will.

“I think the market is trying to cope with all this political pressure and pre-election noise and I think in the end the RBA does not have an economic reason to cut.”

While these figures suggest resilience in the US economy, it stoked fears that rates in the US would remain higher for longer.

AMP chief economist Shane Oliver previously told NewsWire that if the dollar continued to fall, it could impact the RBA’s next rate decision.

“Imports account for between 10 to 15 per cent of the (consumer price index), so it can have a significant impact,” Dr Oliver said.

“It means every fall in the Aussie dollar by 10 per cent adds 0.1 to 0.15 per cent to inflation.

“If it keeps falling from here – say 20 per cent since the start of 2024 – it could have an impact on the RBA’s decision.”

Dr Oliver has warned if a trade war begins between incoming US President Donald Trump and China, the Australian dollar could collapse, with falls of 20 per cent from the start of the rate cutting cycle likely to put pressure on the RBA to hold rates.

US job figures over the weekend came in surprisingly strong, putting pressure on the Aussie dollar. Picture: NewsWire / Nicholas Eagar

Capital.com senior financial market analyst Kyle Rodda said the US jobs data showed that not only was the US economy strong but it could be re-accelerating.

“That’s sparked fears that the Fed may be on an extended pause or, potentially, at the end of its cutting cycle entirely,” he said.

“The next meeting at which a cut is fully baked-in is now October.”

The larger than expected increase in employment of 256,000 and drop in the unemployment rate to 4.1 per cent suggests the economy needs little support from looser policy.

CBA associate director international economics and currency Carol Kong warns the Aussie dollar could fall further when Australia’s job figures were released later this week.

Originally published as Aussie dollar falls on stronger than expected US job figures