The Australian dollar (AUD) has faced significant challenges in recent weeks, largely due to the diverging monetary policy outlook between Australia and the United States. Analysts note that the AUD has dropped to a six-week low against the US dollar, influenced primarily by remarks from Federal Reserve Chairman Jerome Powell, indicating that interest rate cuts are not imminent. This has contributed to a nearly 2 percent decline in July, the first monthly retreat for the AUD since December.
Recent market data provided a brief respite for the AUD, as a surprising uptick in domestic retail sales initially supported the currency. However, these gains proved short-lived amidst a prevailing negative shift in global risk appetite. The expected release of an Australian producer price index, suggesting a cooling of factory input prices, may lead to further weakness of the AUD if it fuels speculation for interest rate cuts by the Reserve Bank of Australia (RBA).
The RBA's decision to maintain steady interest rates amid global economic uncertainties is a critical factor affecting the AUD. This caution, coupled with declining commodity prices—especially for key exports like iron ore and coal—poses additional downward pressure. Furthermore, a slowdown in China's economy, Australia's largest trading partner, raises concerns about future demand for Australian goods, further impacting market sentiment towards the AUD.
In contrast, developments in Israel, where the shekel has recently plummeted due to the escalating conflict in the region, have also influenced the AUD/ILS exchange rate. The ILS is reeling from a 17% reciprocal tariff imposed by the US, exacerbating its depreciation against the US dollar. This background of geopolitical tension keeps the ILS under pressure, while the AUD has recently approached a 14-day high against the shekel at approximately 2.2099, yet remains 1.7% below its three-month average of 2.247.
The interplay of these economic and geopolitical factors makes the AUD/ILS exchange rate particularly volatile—experiencing an 8.3% trading range from 2.1694 to 2.3485 in recent weeks. Analysts recommend closely monitoring commodity prices, global risk sentiment, and geopolitical developments as they could significantly influence both currencies moving forward.