Australian Dollar US Dollar (AUD/USD) Exchange Rate Benefits From Easing USD Bullishness
Commentary from Federal Reserve policymakers helped to shore up the Australian Dollar to US Dollar (AUD/USD) exchange rate at the start of the week.
As policymakers proved less hawkish than anticipated this undermined the appeal of the US Dollar (USD), even as concerns over trade persisted.
Even so, the underlying picture of the US economy remains positive at this stage, with the Chicago Fed national activity index pushing higher.
Consumer sentiment also showed signs of improving in recent days, as analysts at RBS noted:
‘It seems the US consumer didn’t have quite the soft patch in Q1 as previously thought. And nor should it. Job growth remains robust and wages, while nothing to write home about, are rising faster than inflation. Take home pay is also being boosted by tax cuts. The US consumer has enough reasons to be cheerful.’
This could offer a fresh boost to the domestic economy in the months ahead, although USD exchange rates were unable to maintain their recent bullish run on Tuesday.
RBA Comments to Encourage AUD/USD Exchange Rate Volatility
Further volatility is likely for the Australian Dollar to US Dollar (AUD/USD) exchange rate on Wednesday as Reserve Bank of Australia (RBA) Governor Philip Lowe delivers a speech in Sydney.
Markets are expected to pay close attention to Lowe’s words, assessing the governor’s outlook on monetary policy.
If Lowe reiterates the view that interest rates are likely to remain on hold for some months yet to come the appeal of the Australian Dollar (AUD) looks set to deteriorate.
With investors forecasting that the RBA will leave monetary policy unchanged until well into 2019 AUD exchange rates look vulnerable to further downside pressure.
Even so, if the Westpac leading index shows a rebound on the month in April this could offer support to the AUD/USD exchange rate in the short term.
Hawkish Fed Minutes Forecast to Dent Australian Dollar US Dollar (AUD/USD) Exchange Rate
The release of the Federal Open Market Committee’s (FOMC) May meeting minutes could put additional renewed pressure on the Australian Dollar to US Dollar (AUD/USD) exchange rate this week.
Investors are hoping to see signs that the Fed is prepared to pursue a more aggressive path of monetary tightening in the months ahead.
If the minutes prove more hawkish in tone then the mood towards the US Dollar is likely to turn bullish once again, driving the AUD/USD exchange rate lower.
However, any signs of caution amongst policymakers could give USD exchange rates cause for pause.
A further tightening of the domestic labour market in the latest jobless claims figures could also offer support to the US Dollar.
As long as the world’s largest economy continues to demonstrate resilience the upside potential of the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to remain limited.