Australian dollar dives to two-month low as interest rate fears grip markets

The Australian dollar slipped about 0.9% against the U.S. dollar on the Sydney market open, falling to 0.6420. Friday's stronger-than-expected U.S. payrolls data reinforced views that the Federal Reserve may avoid cutting rates through 2026; the U.S. 10-year Treasury yield approached 4.3% and the dollar index started the week firmer.

A brief Reserve Bank of Australia statement said officials were "closely monitoring market volatility" and that monetary policy decisions would be made on the basis of domestic inflation dynamics. According to the Australian Bureau of Statistics, headline annual inflation was 3.1% in May, at the top of the RBA's target band; economists expect the central bank to remain cautious on policy.

Commonwealth Bank economists said the weekly trend in AUD/USD could remain under pressure for some time, with iron-ore prices easing to $92 a tonne on China-demand concerns also limiting the export contribution to the Australian budget. The ASX 200 index closed Monday down 1.1%. This article is not investment advice.