The Australian Dollar to US Dollar (AUD/USD) exchange rate was trending in a narrow range on Monday as investors braced themselves for a highly influential week of data. Tuesday’s likely to see some major ‘Aussie’ Dollar movement as the Reserve Bank of Australia (RBA) releases its latest meeting minutes. The June minutes will be closely examined as the RBA is in the midst of a potential rate cutting cycle. So far this year the central bank has made two downward adjustments to interest rates, taking the official cash rate (OCR) from 2.50% to 2.0%. The last downward revision was made in May and investors are speculating that further cuts could occur in the near future.
Monday saw RBA Assistant Governor Christopher Kent comment on the subject of monetary policy and suggest that it ‘is working against headwinds. Consumption growth has picked up since 2013. But it is still a little weaker than suggested by historical experience.’ However, Australia’s economic growth is struggling and is currently on course to record its longest period of below-average growth since the nation’s last recession in the early 1990s. However, despite looser economic policy, the Australian Dollar exchange rate has remained strong against other majors—something the RBA has attempted to combat over the past twelve months.
Kent commented that the exchange rate ‘continues to offer less assistance than would normally be expected in achieving balanced growth in the economy.’ Meanwhile, the US Dollar is in for an interesting week with the release of the Federal Open Market Committee’s (FOMC) interest rate decision on Wednesday. The Fed isn’t expected to begin hiking interest rates until September, but the event could still cause some major US Dollar fluctuations. Any hawkish comments from the Fed could allow the ‘Greenback’ exchange rate to rally, while any hawkish tones could pressure it much lower. Thursday will be another influential day for the AUD/USD currency pair with the release of the US Consumer Price Index (CPI). A rise in inflation could also spur a US Dollar rally as investors feel more confident that a Fed rate hike will indeed occur sooner rather than later.
Another factor that could influence the Australian Dollar this week will be any changes in commodity prices, and particularly the price of the nation’s largest export, iron ore. After a near 50% price decrease in the past year, iron ore values have been extremely sensitive and weighed significantly on the Australian economy. A decline in Chinese stockpiles had recently allowed iron ore to rally, but prices have stabilised as the news wore off. Chinese ecostats can also have a major impact on the Australian Dollar exchange rate as the nations share strong trade links, but this week will be relatively quiet, with only China’s House Price Index out on Thursday.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is trending in the region of 0.7725.