After a recent unemployment report was released, the Aussie dollar dropped 0.9% to a nine month low of US63.64c, while bond yields mixed with a three year bond return up 6 basis points (3.96%) and the ten year bond down 3 basis points all underscoring the current uncertain economic environment. Price rises have now also been tipped as a result.

The latest decrease in the country’s currency has dropped to the lowest point since November, shedding 1% last week for a 4th consecutive decline.

Senior Analyst at City Index, Matt Simpson said, “Cracks are finally appearing in the employment data, and that should clear up any doubt over whether the RBA are done hiking. They’re done at 4.1 per cent with persistently weak data from China and easing from the PBOC adding to the case of a peak rate.”

Poor sentiment has led to investors dumping risk assets across Asia leading to data showcasing an 89% downturn in Chinese new bank loans, despite cuts in interest rates.

Head of Commodity and Carbon Research at Westpac, Rob Rennie said, “I am surprised that it has taken so long for the Aussie to drop below the US65.5c to US65c level. The Australian dollar has been less attractive given the recent RBA {monetary} policy guidance.”

He said even though he expected the Aussie dollar to break through US64c, he wasn’t “overly negative” due to the US Federal Reserve signaling it was a lot closer to ending the tightening cycle.

The currency lost over US6c in the last 12 months, largely due to the Fed lifting its policy rate more than the Reserve Bank in an effort to calm inflation.

Mr. Rennie continued, “Ultimately, the $A is a buy on dips. But I need to see more positive developments in China and\or Australia, and I am not yet convinced of that on either front.”

Nervous investors are also pushing bond yields higher, over fears the Fed may be forced to raise rates once again, thanks to a higher than expected US produce price report.

The US producer price index (PPI) rose 0.3% in July as services costs rebounded at the fastest pace in almost a year. It also increased 0.8% in the 12 months to July.

Economist for NAB’s Marker Unit, Taylor Nugent said, “With the market increasingly confident of a soft landing, the upside surprise [to PPI] does highlight sensitivity to the risk of re-acceleration so long as labour markets remain tight and demand remains resilient.”

There are reports of a 40% chance the Fed will raise interest rates by November, with over 110 basis points of cuts implied for next year beginning in March, which could very well lead to an increase in prices.

Australian interbank futures show a 50/50 chance of a rise between November and early next year, bringing the cash rate to 4.35%, with only 30 basis points of cuts in 2024.