AUD Fails to Capitalise as RBA Lowe Points to Global Growth Acceleration and Potential for AUS Inflation
The Australian Dollar US Dollar (AUD/USD) exchange rate slipped slightly on Monday, failing to find sufficient support on remarks last week from Reserve Bank of Australia (RBA) Governor Philip Lowe that pointed to accelerated global growth and how it could strengthen inflation.
Speaking in front of the Parliamentary Committee, Lowe reassured markets that whilst a rate hike is not likely in the near-term, the next move from the central bank will be ‘up, not down’, and that if above-trend growth and low unemployment continues, higher inflation will also follow.
‘Above-trend growth at a time of low unemployment should be expected to see inflation lift, even if that lift is gradual because of factors that are affecting wage and price pressures globally’.
The Bank Governor also continued to stress that the RBA will not be pushed to follow lock-step with other central banks in the tightening of monetary policy, however – a sentiment that he has repeated on multiple occasions.
Nonetheless, his comments, whilst not entirely new, revealed optimism for the state of the global economy and how it could bleed effectively into the Australian financial system.
This attitude is not reflected by Westpac, however, with the group expecting real GDP growth to hit 2.5% in December 2018 and 2019 – contrasting the RBA’s forecast of growth to 3.25% in both years.
Combined, this news has left the AUD/USD exchange rate floundering within a narrow band, with the ‘Aussie’ Dollar’s upward potential also limited by last week’s run of strong US data sets.
USD Exchange Rates Climb on Robust University of Michigan Sentiment Index
US Dollar (USD) exchange rates climbed on Monday, extending their rally as markets digested last week’s run of upbeat US data releases.
Friday’s most notable release was perhaps the University of Michigan consumer sentiment figure for February, which printed at 99.9, up from the previous period’s 95.7 and the forecast of 95.5.
This marked the second-highest level for this reading in 14 years, with optimism soaring on the back of US President Donald Trump’s latest tax cuts, rising incomes and a tightening jobs market.
Indeed, these attitudes seemed entirely unaffected by the recent chaos within the stock market, with some 35% of respondents expressing favourable attitudes towards the government’s policies and overwhelming optimism being shown for America’s economic outlook.
Beyond this, last week’s higher-than-expected US inflation readings drove bets for a Federal Reserve rate hike in March even higher, with markets now optimistic that record-low unemployment levels are driving wage growth high and, in turn, consumer prices.
AUD/USD Exchange Rate Forecast: Australian Wage Growth and Other Key Events in the Week Ahead
The Australian Dollar US Dollar (AUD/USD) exchange rate could encounter some volatility this week as markets respond to a variety of pertinent ecostats.
Kicking things off RBA Michelle Bullock is due to give a speech in Sydney later today, followed by the release of the ANZ Roy Morgan weekly consumer confidence index.
Tuesday will feature the release of the RBA’s February meeting minutes, and whilst markets are not expecting anything new to discovered, there remains the possibility that certain policy plans or bank sentiment, previously undisclosed, could be revealed.
This will then be followed by Wednesday’s Australian wage price index – a release that will be heavily scrutinised by analysts in order to assess the most likely path of monetary policy in 2018.
For the ‘Greenback’, markets will largely be assessing Wednesday’s FOMC meeting minutes, with any hint at an earlier-than-expected rate hike liable to send the US Dollar soaring,