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AUD/USD Exchange Rate Cools on Increased Fed Rate Hike Bets

US Dollar Exchange Rates

In response to Federal Open Market Committee (FOMC) interest rate decision minutes that kept the door open for a June rate hike, the Australian Dollar softened versus most of its major peers.

Australian Dollar (AUD) Exchange Rate Struggles after Mixed Labour Market Data Results

During Thursday’s European session, the Australian Dollar to US Dollar (AUD/USD) exchange rate edged lower by around -0.2%.

Against most of its major peers the ‘Aussie’ (AUD) declined thanks to damp market sentiment and improved bets of a near-term Federal Reserve cash rate increase. Commodity prices declined and global equity markets dropped, prompting increased demand for safe-haven assets.

Also adding to dampened market sentiment is concern that a crashed EgyptAir flight was an act of terrorism. Egyptian Aviation Minister Sherif Fathi said:

‘Let’s not try to jump to the side that is trying to identify this as a technical failure – on the contrary. The situation may point – and I say ‘may’ because I don’t want to speculate and I don’t want to go to assumptions like others – but if you analyse the situation properly, the possibility of having a different action, or having a terror attack, is higher than the possibility of having a technical [fault].’

Australian economic data produced mixed results yesterday, erring towards negativity. April’s Employment Change saw 10,800 newly employed, missing the median market forecast 12,000. April’s Unemployment Rate managed to hold at 5.7%, despite speculation of an increase to 5.8%. However, the headline figure masks an actual rise in unemployment as the participation rate was lower-than-expected.

During Thursday’s European session, the Australian Dollar to US Dollar (AUD/USD) exchange rate was trending in the region of 0.7203.

US Dollar (USD) Exchange Rate Cooled from Intraday Highs on Profit Taking

Following the surprisingly hawkish minutes from the FOMC, the US Dollar rallied significantly. Policymakers left the door open for a June rate hike provided the recent economic slowdown was just a blip. Analysts at Bank of America Merrill Lynch stated;

‘The April minutes of the Federal Open Market Committee (FOMC) revealed a greater willingness to consider a June rate hike than market pricing or recent consensus among economists would suggest. Indeed, “some” voting members thought that market pricing of a June rate hike “might be unduly low.” While “most” participants thought that a case for hiking in June could be made if their forecasts for improving 2Q growth, continued labour market strength, and progress on inflation were met, “several” worried that “incoming information might not provide sufficiently clear signals” in time.’

In addition to profit taking, the US Dollar declined in response to labour market data that showed increased jobless claims and an unexpected contraction in May’s manufacturer business conditions.

AUD/USD Exchange Rate Forecast to Hold Losses

Given that market sentiment is unlikely to see a swift turnaround, especially with the prospect of the EgyptAir crash proving to be a major terrorist attack, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to hold losses throughout today’s session.

With an absence of domestic ecostats to provoke changes, the Australian Dollar is likely to see volatility in response to commodity prices and changes in equity market values.

Similarly, the lack of US data should see the North American asset see movement in response to market sentiment.

The Australian Dollar to US Dollar (AUD/USD) exchange rate climbed to a high of 0.7237 during Thursday’s European session.