Aussie hits nine-week low as softer inflation cuts rate bets and raises import-cost risk

The Australian dollar has sunk to a nine-week low below US70¢ despite another Reserve Bank rate rise, threatening to add to import costs just as governor Michele Bullock put the currency at the centre of the bank’s fight against inflation.

The Aussie fell as low as US69.59¢ on Wednesday after August inflation came in a fraction below forecasts, extending losses that began after the Reserve Bank lifted the cash rate 25 basis points to 4.6 per cent on Tuesday.

Headline inflation accelerated from 3.5 per cent to 4 per cent over the year, but prices rose 0.4 per cent in August against expectations of 0.5 per cent. Traders cut the implied chance of another November rate rise to just under 20 per cent after the figures, according to Reuters.

Ms Bullock had put the exchange rate front and centre in the bank’s inflation fight only a day earlier, saying its research found “the most important channel is the exchange rate channel”.

“Raising interest rates impacts import prices. It makes imports cheaper, encourages people to spend more on imports rather than domestically produced goods,” she said.

But if the Aussie stays weaker for longer, the concern is imported goods and equipment will cost Australian businesses more, pushing up domestic demand — and inflation along with it.

Tuesday’s rate rise was already “priced in” to the currency, NAB head of foreign exchange strategy Ray Attrill said, while Ms Bullock “did not sound as hawkish as anticipated” at her post-meeting press conference.

Importers currently face higher costs unless they have hedged against a weaker currency, he said, while exporters earning US dollars benefit when those revenues are converted back into Australian dollars.

ANZ head of foreign exchange research Mahjabeen Zaman said the Aussie had been dealt a “double whammy” by softer expectations for Australian rates and a strengthening US dollar.

Markets had latched on to Ms Bullock revealing the board discussed a pause before unanimously raising rates, she said, while the US dollar had strengthened broadly over the past week.

Ms Zaman said the latest slide needed perspective: “While suddenly we’re under 70¢, it feels like a huge fall, but on a year-to-date basis, we’re up 4.5 per cent.”

The Aussie spent much of 2025 below US65¢ and has traded closer to US69¢ to US72¢ this year. ANZ still expects it to recover to about US73¢ by the end of 2026.

Ms Zaman said cheaper imports did not automatically mean lower prices at the checkout, with the outcome depending on household spending, domestic demand and if businesses passed savings through or held them in margins.

UBS economist Stephen Wu warned: “A weaker dollar, if sustained, could further add to inflation remaining too high.”

The investment bank expects September-quarter trimmed mean inflation to rise 1 per cent, above the Reserve Bank’s previous forecast of about 0.8 per cent, and still expects another 25 basis point increase, most likely in November.

Ms Bullock said the exchange-rate effect takes “a while to feed through”, with the full impact of rate rises strengthening the dollar potentially taking 12 to 18 months.