AUD Exchange Rates Turn a Blind Eye to Poor Private Sector Wage Growth
The Australian Dollar US Dollar (AUD/USD) exchange rate mounted an effective recovery on Thursday, bouncing back from yesterday’s fall and taking markets by surprise.
Investors had expected yesterday’s wage growth readings to leave the ‘Aussie’ Dollar floundering, particularly with the private sector reading only just keeping up with Australia’s inflation rate.
Instead, it would appear that as demand for the US Dollar cooled, the Australian Dollar quickly capitalised, turning a blind eye to claims that the Reserve Bank of Australia (RBA) will now be put off a rate hike for the foreseeable future.
Beyond this, it would appear that the Australian Dollar (AUD) found strength in the prospect that the strengthening Chinese economy will continue to fuel demand for base metals.
Nonetheless, it should be stressed that rising optimism for a rate hike from the US Federal Reserve in March could leave AUD/USD vulnerable, particularly with markets lacking much in the form of pertinent Australian ecostats as the week comes to a close.
US Dollar (USD) Exchange Rate Optimism Rises as FOMC Minutes Prove Hawkish
The US Dollar (USD) saw a boost on Thursday from the recent release of the US Federal Open Market Committee (FOMC) meeting minutes – with optimism rising for the possibility of a US Fed rate hike as soon as March.
The minutes revealed that the US Federal Reserve sees increasing economic growth and accelerating inflation as justifications for ‘further gradual policy firming’, with committee members expecting inflation to climb to the Fed’s 2% target in the medium term.
The Summary read:
‘A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate’.
This news provided some support for the US Dollar, but warnings that too many rate hikes this year could slow the US economy soon curbed its rise.
St Louis Fed Reserve President James Bullard echoed this sentiment, warning:
‘One thing I’m concerned about is if there’s a bunch of hikes this year Fed policy will turn restrictive’.
AUD/USD Exchange Rate Forecast: Analysts Predict ‘Aussie’ Dollar Relief-Bounce to be Limited
The Australian Dollar US Dollar (AUD/USD) exchange rate could encounter some pressure before the week finishes, with many analysts asserting that the ‘Aussie’ Dollar’s current rally is simply a short-term run.
This is largely due to the optimism for a possible US rate hike in March, but other factors like a drop in iron ore prices and a dovish RBA are also expected by many to be severely limiting.
Looking further ahead, next week’s US growth readings will largely take centre stage, though remarks from various FOMC members could also prompt market volatility.