Under supposedly unfavourable conditions, the Australian Dollar has managed to rise sharply against the US Dollar and most other currency peers today.
Dovish Reserve Bank of Australia (RBA) minutes and a caution-laden speech from the RBA Governor have failed to prevent a clear AUD/USD rate rise.
Hopes for Eventual AU Interest Rate Hike Trigger AUD Advance
The Australian Dollar to US Dollar exchange rate has risen by 0.3% today, while the AUD has seen additional gains elsewhere.
The RBA has been in the spotlight, with its minutes showing that policymakers are still concerned about slow wage growth across the country.
Inconsistent inflation has also been a problem, as if it fails to remain high then the RBA feels less pressure to consider a rate hike.
On the plus side, RBA Governor Philip Lowe has stated that the next interest rate change could result in a long-awaited rate hike. The key line in Lowe’s remarks was;
‘If the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down’.
Stressing that this is by no means on the immediate horizon, however, Lowe added;
‘The continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not [currently] a strong case for a near-term adjustment in monetary policy’.
USD/AUD Exchange Rate Loses Ground on Unemployment Issues
The recent US Dollar to Australian Dollar decline follows an optimistic tweet from President Donald Trump. Touting forecasts for future US unemployment, Trump said;
‘Under President Trump [the] unemployment rate will drop below 4%. Analysts predict [an] economic boom for 2018!’
This assertion has been met with a healthy dose of scepticism by Nicole Smith, of the Georgetown University Center on Education and the Workforce. Smith has warned that;
‘The 4% number is not exactly a number that economists are necessarily happy with.
If we look historically at other times when the unemployment rate has fallen below 4%, it’s times where it was the boom phase just before recession or just after a major war period’.
Will Australian Dollar Fall Back on Lower Construction Activity?
While the Australian Dollar has dominated against the US Dollar today, it could face a devaluation when Wednesday’s construction output figures are released.
Although construction activity previously rose by 9.3%, estimates are for a decline of -2.1% in the third quarter.
As well as showing less taxable revenues from the construction sector, this could also mean a step back in efforts to increase Australia’s housing stock.
The next major US news will come sooner, when Federal Reserve Chair Janet Yellen gives a speech.
A long-serving Fed leader, Yellen could trigger a US Dollar rally if she drops hints about a December interest rate hike being all but guaranteed.
Recent Interbank AUD USD Exchange Rates
At the time of writing, the Australian Dollar to US Dollar (AUD USD) exchange rate was trading at 0.7577 and the US Dollar to Australian Dollar (USD AUD) exchange rate was trading at 1.3192.