The Australian Dollar to US Dollar exchange rate jumped to a three-week-high of 0.77 during Thursday’s Asian session following the Federal Reserve’s March interest rate hike.
While AUD USD slipped back to 0.76 at various points on Thursday night due to disappointing Australian employment stats, strengthened risk-sentiment kept the pair near its weekly highs.
The main influences of Thursday trade were the statements made in the Federal Reserve’s March policy decision.
While US interest rates were indeed hiked from 0.75% to 1% as markets predicted, the Fed was not as hawkish in its outlook as markets hoped, weakening US Dollar demand and causing investors to look to risky high-yielding currencies.
Following weeks of strong US ecostats and a fully priced in March rate hike, USD traders were hoping for the Fed to upgrade its 2017 interest rate outlook from two or three rate hikes to four or more.
However, the Fed stated that it still only intended to hike US interest rates two more times throughout the year. US Dollar investors will now be looking ahead to upcoming US data before betting on future Fed movement once again.
Australia’s February employment data was largely disappointing when it published on Thursday and kept AUD USD away from its best weekly levels.
The nation’s key unemployment rate unexpectedly worsened from 5.7% to 5.9% in February despite the participation rate remaining the same. 16k new jobs were expected to be created but the employment change print came in with a disappointing -6.4k.
The only upside to the report was news that full time employment had improved by 27.1k while part-time employment dropped.
Thursday also saw the publication of Australia’s March consumer inflation expectations report, which slipped slightly from 4.1% to 4.0%.
With Australian data disappointing, the currency’s strength this week has been due to risk-sentiment alone. Risk-sentiment has also been bolstered by commodity news this week as prices of key commodities like oil and iron ore improved towards the end of the week.
Thursday saw prices of iron ore, Australia’s most lucrative commodity, jump back up to US$90 per tonne due to strong buying from China, Australia’s biggest trade partner.
With Australia’s trade outlook strong and markets less bullish on Fed bets, AUD USD looked to end the week above its opening levels too.
Friday’s ecostats are unlikely to influence the Australian Dollar US Dollar exchange rate considerably unless the day’s March US consumer confidence survey from the University of Michigan comes in above expectations.
If consumers continue to become more confident in March it will indicate that the US economy will continue to see solid performance which will improve bets of further Fed rate hikes in the coming months.
The Australian Dollar, on the other hand, is likely to see its strength fade slightly once investors digest this week’s Fed news and could even drop if traders begin to give Australia’s recent poor data a second look.
At the time of writing, the Australian Dollar to US Dollar trended in the region of 0.76. The US Dollar to Australian Dollar exchange rate traded at around 1.30.