Weak Australian sentiment and RBA policy pause expectations weigh on AUD/USD, with yield spreads signaling further declines.
AUD/USD is consolidating near 0.7050, but yield spreads between Australian and US 2-year bonds suggest downside risks below 0.7000. Analysts cite soft business and consumer sentiment as key drivers.
Australian business confidence improved slightly in May but remains negative, while business conditions held at +3 index points, below long-term averages. Consumer sentiment plunged to near-record lows in June due to cost-of-living pressures.
The Reserve Bank of Australia is expected to extend its policy pause, with futures markets pricing only a 4.6% chance of a 25bps hike by year-end. The RBA projects below-potential GDP growth and a cash rate near neutral levels.