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Australian Dollar Holds Ground Against US Dollar Despite Higher Fed Rate Hike Bets

US Dollar Exchange Rates

The Australian Dollar to US Dollar exchange rate fluctuated widely last week. Despite this, the pair remained near the week’s opening levels on Friday.

The week’s Australian data left the Australian Dollar mixed. While consumer confidence was strong according to Westpac’s February prints, consumer inflation expectations slipped and the latest employment report disappointed.

Australia’s January employment results came in on Thursday and showed that the key unemployment rate had improved to 5.7%.

However, this was largely due to a drop in the participation rate to 64.6%. News that full-time employment had plummeted, while part time jobs gained, also weighed on ‘Aussie’ demand.

The employment news put a stop to the recent Australian Dollar rally.

However, despite a week of rising Federal Reserve interest rate hike bets and solid US data, the US Dollar failed to capitalise.

Last week saw Federal Reserve Chairwoman Janet Yellen state that it would be ‘unwise’ to leave US interest rates frozen for long. She indicated it was best to make use of the current economic momentum in the US, which led to higher bets of a March interest rate hike.

Impressive US data supported higher Fed rate hike bets too. US inflation unexpectedly improved from 2.1% to 2.5% year-on-year in January, while the monthly rate doubled from 0.3% to 0.6%.

US retail sales also beat expectations in January. Monthly retail sales were expected to come in at 0.1% but reached 0.4%. Yearly retail sales came in at a strong 5.6%.

However, as US investors awaited the first fiscal policy announcements from US President Trump, they hesitated to pile into the US Dollar.

Trump has indicated that he will soon go into further detail on his fiscal policy proposals. This is likely to have a significant impact on the US Dollar as well as risk-sentiment.

If Trump’s plans impress investors, the US Dollar will surge. Demand for risky currencies will fall in response as an advancing USD pressures commodity prices lower.

For USD traders, potential fiscal comments and policy announcements from Trump are in focus for the coming week. The minutes from the last Federal Reserve meeting could also influence the US Dollar if it indicates that there will be an interest rate hike sooner rather than later.

Next week’s Australian data includes meeting minutes from the Reserve Bank of Australia’s (RBA) most recent meeting, as well as Q4 2016 wage data.

Overall, it appears the economic calendar will be quieter next week. This will leave the Australian Dollar to US Dollar exchange rate more sensitive to risk-sentiment. For example, if iron ore prices fall from their recent highs the ‘Aussie’ is likely to struggle.


At the time of writing, the Australian Dollar to US Dollar exchange rate trended in the region of 0.76. The US Dollar to Australian Dollar exchange rate traded at around 1.30.