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Currency Update, December 15th, 2022.

On Thursday the US Federal Reserve provided a more hawkish stance on its policy than markets anticipated, but delivering a more mild 50 basis point rate hike, which caused the Australian dollar to decline below $0.6850, retreating from three-month highs and reaching a low of 0.6766 late on Thursday evening. In the previous week we have seen 5 up days for the AUD, this large decline however has wiped away most of the previous weeks gains.

Investors also responded to data revealing that Australia's consumer inflation expectations in December fell to their lowest level in seven months while the nation's jobless rate stayed at 3.4% in November.

At its meeting in December, the Reserve Bank of Australia increased its policy rate by 25 basis points to 3.1%, bringing borrowing costs to a level that had not been seen in ten years.

The RBA has now increased the cash rate for eight months running and stated that it anticipates tightening further more to reduce inflation.

On top of the news from the US, a poor series of significant Chinese economic data, the Australian Dollar modestly declined. Compared to the 3.5% prediction, industrial production increased by just 2.2% year over year in November. This is a decrease from the 5.0% in October.

Retail sales, on the other hand, declined 5.9% year over year for the same period, significantly worse than the -4.0% consensus. This also shows a speeding up from the -0.5% decline in October. In addition, the survey's estimate of the unemployment rate rose from 5.5% to 5.7%, exceeding the estimate of 5.6%.

Australia's top trading partner is China. Because of this, economic results in the former frequently suggest consequences for the latter. In this instance, a slowing China may eventually harm Australia's output, which in turn can cause a knock on effect for our local economy and the view in the markets of the Aussie Dollar.

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