Iron Ore Price Forecasts Cause Australian Dollar to US Dollar Exchange Rate Weakness
The Australian Dollar to US Dollar exchange rate shed much of last week’s gains on Monday morning, as investors reassessed the US Dollar’s (USD) recent weakness while the Australian Dollar (AUD) was weighed by iron ore price concerns.
Prices of iron ore, Australia’s most lucrative commodity, saw solid performance last week and this made the commodity-correlated Australian Dollar more appealing, especially against a weaker US Dollar.
However, on Monday the Australian government announced that it expected iron ore prices to shed around 20% overall in 2018 due to dwindling demand for the commodity from China, Australia’s biggest trade partner.
China’s steel sector has been shrinking as the nation fights back against pollution and its economic growth gradually slows.
This news weighed on the Australian Dollar on Monday, despite other analysts predicting that iron ore prices will largely remain near their 2017 levels on average.
US Dollar (USD) Exchange Rates Rebound after New Year Tumble
The US Dollar spent much of last week’s trade session weakening, as investors were anxious that the Federal Reserve would not hike US interest rates in 2018 as many times as markets hoped.
On top of this, the rising outlook for global growth trends left investors less hungry for ‘safe haven’ currencies like the US Dollar.
US data failed to impress last week too, with December’s key Non-Farm Payroll report falling short of 190k expectations and coming in at just 148k. ISM’s non-manufacturing PMI from December also failed to meet expectations and printed at 55.9.
However, as the data had no real effect on the market’s bets for 2018 Federal Reserve interest rate hike bets, the US Dollar recovered some of its recent losses on Monday.
Some analysts have said the US Dollar’s recent selloff has been overdone, which likely helped the US currency to rebound during Monday trade.
Australian Dollar to US Dollar Forecast: Key US Inflation Report in Focus
Australian Dollar to US Dollar (AUD/USD) exchange rate investors are likely to continue to trade the pair on risk-sentiment over the coming sessions.
If the US Dollar continues its rebound, the Australian Dollar is unlikely to hold its ground amid a lack of recent strong Australian ecostats. Wednesday’s NAB business confidence data could support the ‘Aussie’ if it impresses though.
Some key US data due towards the end of the week is likely to cause some movement too, at least if it surprises investors.
Friday will see the publication of December’s US Consumer Price Index (CPI) report. US inflation is forecast to have slipped in December.
If inflation slowed even further than expected in December, this would worsen concerns that the US economy may not be seeing enough price pressures to support much higher interest rates.
If US inflation disappoints, Fed rate hike bets could decline and the US Dollar’s recent weakness could continue.
On the other hand though, stronger than expected US inflation would have the opposite effect and could boost market confidence that the Fed will maintain a good pace of interest rate hikes in 2018.