Australian Dollar to US Dollar Exchange Rate Movement Limited by Australian Inflation Stats
Despite weakness in the US Dollar (USD), the Australian Dollar to US Dollar (AUD/USD) exchange rate has seen narrow movement in recent sessions as the Australian Dollar (AUD) has simply failed to benefit amid underwhelming Australian data.
After opening this week at the level of 0.8113, the Australian Dollar to US Dollar exchange rate has fluctuated below the week’s opening levels. The pair trended near the level of 0.8095 on Wednesday morning.
The Australian Dollar was unable to capitalise against Wednesday’s weakened US Dollar, as investors were disappointed in Australia’s Q4 Consumer Price Index (CPI) results.
Analysts had forecast that inflation would rise from 0.6% to 0.7% quarter-on-quarter, but it remained at 0.6% instead. The yearly figure was similarly disappointing, only rising from 1.8% to 1.9% despite being forecast to reach 2%.
As a result of the disappointing inflation report, Reserve Bank of Australia (RBA) interest rate hike bets slipped and analysts are now more confident that the bank will simply maintain its current neutral stance.
According to Adam Boyton from Deutsche Bank;
‘With inflation remaining inconsistent with the RBA’s target, and the household sector only just showing the earliest signs of recovery, we see no reason for the RBA to act in an overly pre-emptive — and potentially ‘risky’ — fashion with a too early series of rate hikes,’
US Dollar (USD) Exchange Rates Limp as Fed Meets
The US Dollar saw stronger demand as the beginning of the week as investors looked to buy the currency from its cheapest levels following weeks of declines.
However, the US Dollar’s rally was limited and lacked the drive to continue, with investors awaiting the results of the latest Federal Reserve policy decision before making further moves on the currency.
The Fed’s January meeting began on Tuesday and the decision will be announced during Wednesday’s American session. It will be the final decision held by Fed Chairwoman Janet Yellen before she is succeeded by Jerome Powell.
Recent US data has had little impact on the US Dollar as investors turn their focuses towards the central bank.
Tuesday saw the publication of CB’s January consumer confidence survey, which did beat expectations and rise from 123.1 to 125.4.
Australian Dollar to US Dollar (AUD/USD) Forecast: Federal Reserve Decision in Focus
The Australian Dollar to US Dollar (AUD/USD) exchange rate’s trajectory for the rest of the week is likely to be dictated by Wednesday’s Federal Reserve news, as well as key US data due for publication in the coming days.
Analysts expect the Federal Reserve will leave monetary policy frozen for Fed Chairwoman Yellen’s final decision on the role.
The Fed is expected to continue to hint at gradual monetary policy tightening throughout the year too, and the tone the bank takes on this subject is likely to have the strongest influence on AUD/USD.
If the bank shows optimism on the latest US tax laws, or shows confidence that US inflation will rise in the coming months, Fed rate hike bets would rise and this could be what the US Dollar needs to mount a lasting recovery rally.
However, a more cautious than expected Fed would likely leave AUD/USD stronger by the end of the week as the US Dollar would resume its recent selloff trend.
Notable data in the coming days includes Australia’s December building permits report and January manufacturing PMI, but US data is likely to be more influential.
Key US manufacturing data from ISM will be published during Thursday’s American session, followed by January’s anticipated US Non-Farm Payroll report on Friday.