AUD Weaksens Below Key Support as Inflation Fears Mount

The Australian Dollar (AUD) has weakened significantly over the past few days, pushing its price below the critical 200-day Simple Moving Average (SMA). The AUD/USD pair broke through its recent lows in the mid-0.6900s, a level it had not reached since two months ago.

The main driver of this decline appears to be the disappointing domestic inflation figures, which have raised concerns about the Reserve Bank of Australia's (RBA) ability to control inflation. The RBA had previously signaled that it would maintain its hawkish policy stance, but the latest data suggests that the economy is slowing down.

Despite this, the RBA has not indicated any plans to change course. In fact, Governor Michele Bullock stated that policymakers need to see quarterly core inflation slow to around 0.6% before they can gain confidence that inflation is moving back towards its goal.

The Australian economy continues to perform relatively well compared to other G10 peers, with domestic demand and positive economic growth supporting the RBA's cautious policy stance. However, business activity has lost some momentum, as evidenced by the cooling Purchasing Managers' Index (PMI) for Manufacturing and Services.