The Australian Dollar to US Dollar (AUD/USD) exchange rate weakened to a 3-week low on Tuesday as a rally in the US currency weighed. A 2% surge in the price of iron ore was not enough to halt the ‘Aussie’s’ decline.
National holidays in the USA and Europe, and a lack of domestic data out of Australia led to muted trading volumes.
‘In the last seven or eight trading days we’ve really seen strength in the US Dollar not so much weakness in the ‘Aussie’. The US Dollar had its first positive week for six weeks last week,’ said an economist.
The main driver of the US Dollar’s strength came from comments made last week by Federal Reserve Chair Janet Yellen. In a speech to a business group in Providence Rhode Island, Ms Yellen suggested that the Fed is still on track to raise interest rates later this year and that the US economy is likely to strengthen despite the slowdown experienced in the first quarter of the year.
‘If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalising monetary policy. The US is well positioned for continued growth because of waning headwinds,’ said Yellen in her speech.
The US Dollar was also receiving support from increased demand for safe-haven assets. Worries are growing that Greece will not be able to pay the €1.6 billion it owes to the International Monetary Fund (IMF). Greek ministers are warning that if it comes to it Athens would rather pay pensions and wages than give the cash to the IMF.
Greece and EU officials are set to meet in Brussels, for another attempt at closing the gap between the two sides before the bailout extension expires in just five weeks time. Also raising concerns in the Eurozone was the surprise success of anti-austerity group Pademos in Spain’s local elections.
Later in the session, the AUD/USD currency pair is forecast to see volatility due to the release of the latest US Consumer Sentiment and Durable Goods data. The main data release due for Australia this week will be released on Thursday and is likely to show that business investment has been getting weaker as the mining boom continues to wane.
The Australian Dollar to US Dollar (AUD/USD) Exchange Rate was trading at 0.7787.