Despite previous rallies in the commodity bloc, a surprising change of heart from the previously dovish Federal Reserve has inspired large low-risk movements towards USD, leaving the Australian Dollar in the dust.
AUD/USD Experiences Sharpest Drop in Almost a Year as ‘Aussie’ Rally Ends
The Australian Dollar had been climbing against its rivals quite consistently since January but this movement may be set to end as risk-sentiment is switched off in a big way.
Federal Reserve policymakers made comments on Wednesday that caused the ‘Aussie’ to drop against the ‘Greenback’ giant from 0.7645 to 0.7493 in the space of a day – a whopping -152 pips. The pair currently trends around 0.7517, having rebounded slightly. However, further AUD losses don’t seem unlikely.
High risk-sentiment and bullish commodity news like high iron ore prices and continued confidence in China’s economy are thought to be the biggest factors behind the Australian Dollar’s recent growth.
However, multiple policymakers from the Fed expressed hopeful attitudes towards US economic growth this week after an unexpectedly dovish announcement from the central bank last week.
The Federal Open Market Committee had announced that they were undercutting the forecast 2016 interest rate growth of 100 basis points to a mere 50 basis points, an announcement that shocked investors and drove them towards the higher yields of commodity currencies.
This week’s new bullish attitude towards the US Dollar comes after various high-up members of the Fed suggest that US growth is proceeding smoothly enough for the next interest rate hike to occur as soon as April.
Favour for ‘Safe-Haven’ US Dollar Hurts Commodity Currency AUD
As excitement builds amongst investors and analysts that another US interest rate hike could be on the cards sooner than initially expected, with perhaps more hikes happening in 2016 than dovish analysts predicted, this is matched with decreased risk-sentiment in the global market.
The US also released data confirming that their crude oil reserves were over 9million barrels, far higher than any forecasts and lowering the value of the lucrative commodity once again to below $40 a barrel. This harmed attitudes towards the commodity bloc even further.
Other commodities such as gold also slid in value in the Asian trade market, a vital trade partner for the Australian economy. Investors are also predicted to be settling away from the risky ‘Aussie’ as the Easter holiday period approaches, when Australian banks and trades will slow alongside a lack of major news for the nation.
However it could be due to previously bullish sentiment towards the Australian Dollar that the AUD/USD pair has already trimmed initial losses.
AUD/USD Exchange Rate Forecast: Easter May Limit Movement
While the United States is due to release more data on Friday, the Australian Dollar’s movement may be restricted by the lack of news and data due for release during the Easter holiday weekend.
United States GDP and Personal Consumption data is due for release on Friday, followed by key Trade Balance and PMI data releases on Monday. These could cause some AUD/USD shifts, with the ‘Aussie’ potentially extending losses if the data prints well.
While it seems to be a quiet week ahead for Australian economic news, the AUD/USD pair will also surely be influenced by further developments in risk-sentiment and the commodity bloc going forward into April.
Some analysts predict that high-risk investments could return to favour if oil news proves positive – however the opposite could happen if the Fed continues to tease that an April rate hike could actually be reality.
Until then, various releases of US data look to be the most likely offenders of exchange rate change. The middle of next week will see mortgage application and key employment data being released, as well as consumer confidence data for March.
The week is set to be full of US data and the influential ‘Buck’ seems likely to be taking focus. Currently, the ‘Aussie’s’ rally has paused, with AUD/USD slipping from the highest point since June 2015.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is currently trending in the region of 0.7517 while the US Dollar to Australian Dollar (USD/AUD) exchange rate trends in the region of 1.3303.