Cautious Outlook from AU Central Bank Sparks Australian Dollar to US Dollar Decline
The Australian Dollar to US Dollar exchange rate has fallen today, following the release of uninspiring Reserve Bank of Australia (RBA) minutes.
The minutes for the RBA’s policy meeting in March were disappointing overall, as they suggested that RBA policymakers would not make adjustments in the near-term.
The text from this month’s meeting had ‘gradual’ as its watchword, as issues preventing tighter monetary policy were identified;
‘Employment had grown strongly and the unemployment rate had fallen over the preceding year.
Forward-looking indicators suggested that spare capacity in the labour market would continue to decline gradually over 2018 and wages growth was expected to rise gradually.
Household debt levels remained high, which contributed to the uncertainty surrounding the outlook for consumption growth.
The low level of interest rates over 2017 had played a role in reducing the unemployment rate and bringing inflation closer to target.
Further progress on these goals was expected over the period ahead, but this process was likely to be gradual.
Over 2018, GDP growth was expected to exceed potential growth and CPI inflation was expected to increase gradually to be a little above 2%’.
US Dollar to Australian Dollar (USD/AUD) Exchange Rate Rises ahead of Forecast Fed Interest Rate Hike
The US Dollar has made minor gains against the Australian Dollar today, although in other pairings the US currency has traded tightly.
With that in mind, today’s minor USD/AUD gains are more down to Australian Dollar weakness than any particular US Dollar strength.
The current influencer on US Dollar movement is speculation about the Federal Reserve, the US central bank.
A majority of economists predict that the Fed will raise US interest rates on the evening of 21st March, from 1.5% to 1.75%.
While this outcome is largely priced in by economists, there are underlying worries that Fed officials will not discuss the potential impacts of US metal tariffs.
US tariffs on the import of steel and aluminium will be imposed on 23rd March and analysts are still concerned that these will ultimately damage the US economy.
Australian Dollar to US Dollar Exchange Rate Forecast: Risk of AUD/USD Losses on Fed Rate Hike
The Australian Dollar to US Dollar exchange rate could fall further in the near-term, when the Federal Reserve holds its monetary policy meeting on 21st March.
Although Fed officials are widely expected to raise interest rates, a forecast-matching decision could still lead to a US Dollar to Australian Dollar advance.
There is a slim chance of recovery for the Australian Dollar on 22nd March, when national unemployment data will be released.
The unemployment rate for February isn’t expected to change from 5.5%, but a sharp rise in the number of employed persons could still boost AUD demand.