- Australian Dollar US Dollar Hits 0.7982 – US Dollar Australian Dollar hits 1.2590
- Reserve Bank of Australia Proves Dovish – Demand for the ‘Aussie’ Dollar Dips
- China Renews Pledge to Curb Steel Overcapacity – Iron Ore Prices Surge, Bolstering Wounded ‘Aussie’
- US Dollar Limp – Fresh PMI Data Fails to Impress Markets, Perceived Political Chaos Drives Demand Down
The Australian Dollar to US Dollar (AUD USD) exchange rate has predominantly fluctuated today after the recent dovish Reserve Bank of Australia (RBA) meeting drove the pairing lower before surging demand for iron ore helped the ‘Aussie’ recover losses.
As predicted, the RBA left interest rates at 1.5% in August, marking a whole year with no rate changes.
The RBA asserted that rates remaining low would continue to support the Australian economy – particularly in eventually achieving target levels of inflation (something that many economists are predicting could take another year).
RBA Governor Philip Lowe stated:
‘The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.
Employment growth has been stronger over recent months, and has increased in all states. The various forward-looking indicators point to continued growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet’.
With murmurings spreading regarding the possibility of yet another year of interest rates remaining subdued, demand for the ‘Aussie’ Dollar plummeted. Last night, however, the Australian Dollar caught a break as the price of iron ore climbed.
AUD USD Steadily Climbs as Iron Ore Hits Four-Month High
Iron ore prices leapt to a new four-month high last night, wonderful news for the commodity-correlated ‘Aussie’ Dollar, which saw some gains today as a result.
Earlier this week the RBA left rates on hold at 1.50%, as was widely expected beforehand, and Governor Philip Lowe warned that ‘the higher [Australian Dollar] exchange rate was expected to contribute to subdued price pressures’. The remarks were seen to weaken the prospects of a near-term rate rise, however, some analysts still believe that the RBA will be moved to push rates higher later in the year so the Australian Dollar losses were limited.
US Dollar (USD) Limp as Perceived Political Instability Lowers Demand
Demand for the US Dollar dipped today as markets digested perceived political instabilities within the White House.
Anthony Scaramucci was recently fired from his position as White House Communications Director only 10 days after replacing previously fired Reince Priebus.
Scaramucci’s dismissal (and indeed Priebus’) only raised anxieties regarding the stability of the White House, particularly in the wake of last week’s ‘skinny repeal’ of Obamacare failing to garner enough votes to pass.
Markets are currently worried that the Republican Party will be unable to negotiate its highly anticipated tax reform program – a worry that has continued to weigh on the ‘Greenback’.
FX strategist Sireen Harajli supported this sentiment, stating:
‘[Political] policy uncertainty in the US I think has been the biggest driver of declines in the Dollar recently, any positive effect from the election of President Trump I think at this point has been priced out’.
Demand has also been driven away from the US Dollar by the recent US PMI figures, with some coming up short of expectations.
July’s ISM manufacturing PMI demonstrated a fall from 57.8 to 56.3 (projected 56.5), whilst the year-on-year PCE price index for June disappointed by printing at 1.4%.
Demand for the US Dollar dipped as a result.