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AUD USD Exchange Rate Rebounds as Markets Speculate on Future US Rate Hikes

US Dollar Exchange Rates

After initially falling at the start of this week’s session the AUD USD exchange rate rallied late on Monday as investors became increasingly pessimistic towards future rate hikes from the Federal Reserve.

Doubts were first cast last week by St. Louis Fed President James Bullard, who said that more than one additional rate hike this year could be too aggressive.

Recent data from the US appeared to support this statement as it showed the US economy slowing, while the recent political storm that has engulfed the Trump administration has also cast some doubts on future monetary policy.

While CME Group’s FedWatch tool currently places the odds of a fed rate hike in June at around 80%, USD investors’ fear that a third expected rate hike later this year could be under threat if US data doesn’t start to pick up in the coming months.

Meanwhile the Australian Dollar was strengthened on Monday by the continued rise in iron ore prices, with Australia’s largest export climbing to $62.69 a tonne at the start of this week’s session.

The current rise appears to be driven by surging production in China’s steel mills, with the subsequent increase in demand for the raw commodities used to produce it pushing iron ore higher.

However markets remain concerned over the record levels of iron stockpiles in Chinese ports as they recently ballooned to 136 million metric tons, prompting concerns of a sharp fall in the value of iron ore once the current steel production glut comes to an end.

Dane Davis, an analyst at Barclays Plc said;

‘When steel demand is running hot, high volumes of stockpiles don’t matter, as they are lower-quality ores and not needed at the moment. However, when steel demand slows from high production volumes, then stockpiles matter, and matter fast.’

Looking ahead, the AUD USD exchange rate may slide early on Tuesday following a speech by Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle in which analysts forecast he will not deviate from the Bank’s dovish outlook after a notable drop in full-time employment last month.

Meanwhile the US Dollar may slump further overnight on Tuesday as US New Home Sales are predicted to have declined from 621,000 to 610,000 in April.

Current Interbank Exchange Rates

At the time of writing the AUD USD exchange rate was trending around 0.7475 and the USD AUD exchange rate was trending around 1.3375