Cautious RBA Meeting Minutes Leaves the Australian Dollar US Dollar (AUD/USD) Exchange Rate Tumbling
The Australian Dollar to US Dollar (AUD/USD) exchange rate took a tumble on Tuesday, falling as markets reacted to various cautious statements in the recent Reserve Bank of Australia (RBA) meeting minutes and the current surge in demand for the ‘Greenback’.
Markets had not expected anything new to be revealed in the RBA’s latest meeting minutes, but certain cautious remarks proved effective in limiting the Australian Dollar’s (AUD) upward potential.
Most pertinent was the ongoing concern revealed amongst RBA officials regarding the present state of inflation and soft Australian wage growth.
The minutes reflected this, stating:
‘Even with the strength in the labour market, wage growth was yet to pick up. Inflation also remained low, but was expected to increase gradually as the economy strengthened and wage pressures rose over the forecast period.’
‘Further progress on these goals was expected over the period ahead but the increase in inflation was likely to occur only gradually as the economy strengthened.’
This underlined the fact that the central bank is very much reliant on a pickup in wage growth in order to meet their inflation forecasts, with a disappointing reading tomorrow liable to dispel rate hike prospects for the RBA for the foreseeable future.
US Dollar (USD) Exchange Rates Climb ahead of US FOMC Meeting Minutes
US Dollar (USD) exchange rates climbed on Tuesday, riding a wave of optimism on the back of higher-than-expected US inflation readings, near-full employment figures, accelerating wage growth and slowly renewing bullish trader activity.
Combined, these factors have led many to posit that the US Federal Reserve will raise interest rates more rapidly this year than previously anticipated, with some analysts expecting a rate hike as soon as March.
On this front, economists will be keen to assess tomorrow’s US Federal Open Market Committee (FOMC) meeting minutes for further clarification - particularly after the Fed’s hawkish late-January policy statement.
If the minutes reveal a more widespread urgency to tighten monetary policy than previously anticipated then the ‘Greenback’ could find some support, though it should be stressed that many investors are apprehensive that an overly aggressive run of rate hikes could do more harm than good for the US economy.
Indeed, if interest rates increase too quickly, it can cause a chain reaction that could inhibit the US domestic economy, as well as the global economy.
Australian Dollar US Dollar (AUD/USD) Exchange Rate Forecast: Australian Wage Growth in the Spotlight
Tomorrow could be a pivotal day for the Australian Dollar US Dollar (AUD/USD) exchange rate, with Australia’s latest wage report liable to extend the ‘Aussie’ Dollar’s losses or give it a shot in the arm.
Markets currently expect the wage readings to hold steady at 2.0% year-on-year, with the quarter-on-quarter reading also forecast to remain at 0.5%.
No change could, as previously mentioned, lead to the RBA being forced to readjust their inflation forecasts, an event that would also kick into touch the possibility of a rate change.
Beyond this, and the aforementioned US FOMC minutes, markets will be assessing the US Markit services, manufacturing and composite purchasing managers’ index (PMI) readings, with any increase here liable to underline the strength of the US economy.
It should be stressed, however, that these will largely play second-fiddle to the US FOMC minutes.