The Australian dollar has fallen to its lowest level since November 2025, trading below US67 cents as rising US bond yields and Middle East tensions weigh on sentiment.
Business & Markets Desk is a contributing writer covering business and public affairs for The Sydney Times.
The Australian dollar has fallen to its lowest level since November 2025, trading below US67 cents, as rising US bond yields, Middle East tensions and expectations of further Australian interest rate increases weigh on sentiment.
The Australian dollar is caught in a crossfire of opposing forces. On one side, the RBA's tightening cycle is pushing Australian interest rates higher relative to major currencies, which should support the dollar. On the other side, rising US bond yields are strengthening the US dollar against almost every major currency, including the Australian dollar. The US Treasury's underwhelming bond buyback pushed long-term yields higher around the world, compressing the relative appeal of Australian assets.
Middle East tensions have pushed Brent crude above US$107 a barrel, which is positive for Australia's terms of trade as a commodity exporter, but the positive impact on the currency is being offset by the broader risk-off sentiment that accompanies oil spikes. When conflict in the Middle East disrupts shipping and energy markets, the US dollar typically strengthens as a global safe-haven currency, dragging other currencies lower in relative terms.
The Australian dollar also faces pressure from domestic economic fundamentals. Retail sales in Australia slowed sharply in July, with the annual growth rate falling to its lowest level in almost two years as consumers cut back on spending. A slowdown in consumer spending reduces the probability of aggressive interest rate increases from the RBA, which would normally support the dollar by narrowing the interest rate differential with other currencies.
The RBA's September meeting on 28 and 29 September comes at a pivotal moment. Citi reportedly expects hikes in both September and November, which would take the cash rate to 4.85 percent by year-end. If the RBA signals further tightening, the Australian dollar could find support from higher relative interest rates. If the RBA pauses or signals concern about growth, the dollar could weaken further.
The market pricing for a September rate increase has risen to around 70 percent probability, up from 40 percent a month ago. The increase reflects the combination of higher oil prices, rising inflation expectations and the RBA's stated determination to return inflation to the 2 to 3 percent target band by the end of 2027.
A weaker Australian dollar makes imported goods more expensive, which feeds into inflation. Petrol prices, electronic goods, clothing and overseas travel all become more costly when the Australian dollar falls. Imported inflation is already a concern given the spike in oil prices, and a weaker AUD compounds that pressure.
For exporters and tourism operators, a lower AUD is a mixed blessing. It makes Australian goods and destinations cheaper for foreign visitors, supporting tourism and education exports. But it also raises the cost of imported inputs for manufacturers, which can squeeze margins if those costs cannot be passed through to domestic customers.
According to the FXStreet AUD analysis, the AUD/USD pair is testing support levels not seen since November 2025, with the next significant support area around US65 cents. The path of least resistance remains to the downside as long as US yields stay elevated and the RBA's tightening cycle remains uncertain. For more on Australian business and markets, see Business & Markets.
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