The US Dollar has conversely risen across the board, potentially because of optimism about a more dynamic Federal Reserve.
Australian Dollar Declines on Fears over Future RBA Interest Rate Decisions
The Australian Dollar losses seen today have come from trader disappointment about the latest RBA rate decision.
As expected, the RBA left interest rates at 1.5% in its November meeting.
The more problematic issue was that the bank’s future rate decisions remain a point of great uncertainty.
Highlighting the issues has been Bill Evans of Westpac Bank;
‘There remains a difference of opinion between us and the [RBA] on the growth and inflation outlook.
The [RBA] is expecting above-trend growth next year, despite uncertainty around the household sector. With the associated closing of the output gap along and a gradual move towards full employment, they will continue to forecast inflation moving back to 2.5% in 2019.
We accept that if that dynamic does come to pass, the [RBA] will see opportunity to raise rates next year.
However, our growth outlook is much flatter, particularly given our view on household incomes and wages, and we do not expect that the need will arise to raise rates in 2018’.
Other economists have been similarly concerned about the RBA’s outlook, with Shane Oliver of AMP Capital saying;
‘The RBA remains stuck between a rock and a hard place on interest rates’.
US Dollar Trades Higher as Fed’s Dudley Announces Retirement
The US Dollar to Australian Dollar gains seen today come after a notable announcement from a Federal Reserve official.
Speaking on Monday, Fed Bank of New York President William Dudley announced that he would be retiring in mid-2018, to be replaced before January 2019.
The US Dollar has appreciated on this news because of what it implies – with Dudley stepping down this increases the number of top Fed vacancies for 2018.
Stressing the importance of the situation has been Michelle Girard of Natwest Markets;
‘We are in the midst of a real change in the people who are going to be making policy decisions.
The New York Fed president is probably the third-most important role at the Fed, behind the chair and the vice chair.
All of these people are going to be sort of feeling their way along a bit’.
If all vacancies are filled by hawkish policymakers, the US could be on track to see a faster pace of interest rate hikes in the future.
AUD/USD Rate could Worsen on Upcoming Fed Speech
The next major pairing news will come from the US, when Federal Reserve Chair Janet Yellen makes a speech.
Yellen is due to make remarks shortly and could touch on the possibility of a December interest rate hike.
If she suggests that a December rate hike is still on the table, the US Dollar may rise higher against the Australian Dollar.
The next major Australian data won’t come out until further ahead, when the RBA releases a statement on monetary policy on Friday morning.
This provides a snapshot of the economy over previous months and also takes a look at future movement.
If the RBA has a positive outlook then this could trigger a late-week AUD/USD rate rise.
Recent Interbank AUD USD Exchange Rates
At the time of writing, the Australian Dollar to US Dollar (AUD USD) exchange rate was trading at 0.7656 and the US Dollar to Australian Dollar (USD AUD) exchange rate was trading at 1.3060.