There was a significant decline in gold and commodity prices in US trading on Tuesday which stifled Australian currency support. As risk appetite also deteriorated to some extent in US trading, there was an Australian dollar decline to test support close to the 0.90 level against the US dollar. The currency weakened further following the weaker than expected domestic inflation data on Wednesday with a retreat to the 0.8950 area as there were reduced expectations of further near-term interest rate increases by the Reserve Bank. The underlying situation also continues to suggest that global risks are being underestimated, especially given the underlying pressure for fiscal tightening. In this environment, an Australian dollar decline to 0.8840 is in prospect.
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