USD Optimism Rises Ahead of Fed Chairman Powell Testimony – AUD/USD Exchange Rates Trade Lower
The Australian Dollar US Dollar (AUD/USD) exchange rate traded lower on Monday, slipping as markets prepared for a range of highly influential US economic events on the calendar this week.
First and foremost in terms of significance is the testimony of US Fed Chairman Jerome Powell, an event that will mark his first public appearance as Chairman since he was sworn in after Janet Yellen stepped down.
Powell will comment on the bank’s semi-annual report on monetary policy and the economy as a whole on Tuesday, with markets expected to assess his remarks for any further confirmation of 4 planned rate hikes this year, rather than 3.
Optimism in this regard has steadily risen, with the record-low unemployment levels, higher-than-forecast inflation and steadily accelerating wage growth readings driving many US Fed rate-setters closer towards the hawkish end of the spectrum.
It should be stressed, however, that some policymakers have warned against raising interest rates too quickly, asserting that a sudden run of rate hikes could curb spending and ultimately cut growth too rapidly.
St Louis Fed President, James Bullard, expressed similar sentiment on Monday, stating:
‘I have been a little bit concerned that the committee goes too far too fast. If we are going to do a lot of rate hikes we have to have data that supports that’.
Nonetheless, if Mr Powell proves hawkish, or optimistic about the state of the US economy, then the AUD/USD exchange rate could suffer even further.
In other news, the Dallas general business activity index for manufacturing in Texas proved positive today, rising to 37.2 in February, up from 33.4 in January and smashing the market forecast of a drop to 30.
This marked the highest reading since December 2005, with a broad-based rise across areas such as production, shipments, capital expenditures, hours worked, employment, wages and benefits to name a few.
This also gave the US Dollar a little shot in the arm.
Quiet Data Calendar Leaves AUD Exchange Rates Limited – Chinese Steel and Iron Ore Futures in Focus
With today being entirely empty for Australian data releases markets have been left to focus on the ‘Greenback’ and mull over forecasts for the week ahead.
On the commodity front, however, steel and iron ore prices increased on Monday after China’s top steel-producing region announced its plans to extend winter production cuts – an effort to curb air pollution.
Tangshan steel mills have been pushed to cut production by almost 50% since late last year, a cut in production that led to iron ore – Australia’s primary export and an essential metal in the construction of steel – climbing in value.
This news provided some support for the ‘Aussie’ Dollar, but with tomorrow featuring so many significant events, it mostly kept AUD/USD within a narrow band.
Australian Dollar US Dollar (AUD/USD) Exchange Rate Forecast: Australian Manufacturing, Private Sector Credit Ahead
With last week’s Australian private sector wage growth readings proving poor and hopes for a hawkish move from the Reserve Bank of Australia (RBA) now effectively put-to-bed for the foreseeable future, the outlook for the AUD/USD exchange rate seems rather gloomy.
However, the ‘Aussie’ Dollar might find some room to rally on Wednesday when markets react to the performance of the Australian private sector credit readings for January, and the AIG manufacturing index for February.
Markets currently expect the private sector credit reading to increase from 0.3% to 0.4% month-on-month, with a positive reading boding well for business confidence and activity for the start of the year.
It should be stressed, however, that the manufacturing reading is expected to slip from 58.7 to 57 – a small drop, but one that could still limit the ‘Aussie’ Dollar.