The Australian Dollar US Dollar (AUD USD) exchange rate advanced on Tuesday as investors sought to make some quick gains ahead of the Fed meeting on Wednesday.
US Dollar Subdued as Inflation Concerns Hang over Fed Meeting
The US Dollar has given pause this week as investors await the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday.
While economists overwhelming predict that that the Fed will hike rates in December -meeting its promise to raise interest rates three times in 2017- they remain a little more wary over the prospect of further hikes in 2018.
The main reason for this apprehension is that inflation in the US remains stubbornly low, which combined with last week’s lacklustre wage growth suggests that policymakers may seek to cool the pace of monetary tightening next year.
Mark McCormick, head of FX strategy at TD Securities in Toronto said;
‘Markets after last week’s numbers are probably going into the Fed a little bit more cautious, especially if (Yellen) continues to play out the disappointments we’ve seen around inflation and how that may impact the outlook next year.’
On top of this the near certainty of a December rate hike has been priced in for months now, meaning there is very little upside to the ‘Greenback’ in the run up to this week’s meeting.
Australian Dollar Strengthens as Commodity Prices Firm
At the same time the Australian Dollar was strengthened on Tuesday as commodity prices drifted higher.
The jump in commodity prices was largely on the back of a surge in oil prices as it leapt over $65 a barrel to a new two-year high as the closure of the Forties pipeline in the North Sea ‘rippled through’ energy markets.
Both Iron ore and Coking Coal prices are also expected to have risen on Tuesday following a 1% uptick in Chinese futures for both markets during the Asian session.
AUD USD Forecast: Australian Consumer Confidence to Remain Negative?
Looking ahead the AUD USD exchange rate may tumble on Wednesday as Westpac publishes Australia’s latest Consumer Confidence Index, with analysts forecasting that sentiment will have remained in negative territory in December.
Meanwhile outside of the Fed meeting the US Dollar may be influenced by the latest US CPI figures tomorrow if inflation picked up in November as predicted.
Current Interbank Exchange Rates
At the time of writing the AUD USD exchange rate was trending around 0.7556 and the USD AUD exchange rate was trending around 1.3237