In another week of marked stock market volatility the Australian Dollar to US Dollar exchange rate has nevertheless managed to make some strong gains to climb away from the region of recent multi-year lows.
‘Aussie’ Slipped after Chinese GDP Hit Twenty-Five-Year Low
Although Tuesday’s Chinese fourth quarter GDP report showed that the world’s second largest economy had slowed to its lowest level of growth in twenty-five years the initial market response saw higher-risk currencies rallying, boosted by hopes that Beijing would be moved to introduce fresh economic stimulus. However this pundit optimism was generally short-lived as sliding oil prices continued to weigh on global sentiment, instead shoring up the safe-haven US Dollar.
As January’s Westpac Consumer Confidence reading showed that confidence within the domestic economy had continued to weaken at the start of the year, the antipodean currency gained little support heading into Wednesday. Speculation began to circulate that the Reserve Bank of Australia (RBA) would be prompted to consider loosening monetary policy in the near future, as negative global headwinds have clearly had a detrimental impact on the Australian economy.
US Inflation Data Disappointed to Boost AUD/USD Exchange Rate
However, the AUD/USD pairing was soon prompted to rally again after the December US Consumer Price Index disappointed expectations. Investors were discouraged to find that inflationary pressure had only risen on the year to 0.7%, rather than the 0.8% forecast, while baseline inflation on the month unexpectedly slipped by -0.1%. As this seemed to suggest that the economic health of the US was not quite as robust as might have been thought in the wake of the Federal Open Market Committee’s (FOMC) first interest rate hike, the ‘Greenback’ naturally weakened across the board. This weaker showing also supported commentary from members of the FOMC which had suggested that the Fed might not achieve its target of four rate increases over the course of 2016, denting the appeal of the US Dollar further.
Bounce-back in Oil Shored up Commodity-Currency Demand
While investors were not particularly encouraged by the news that the Australian Consumer Inflation Expectation reading had declined from 4.0% to 3.6% the ‘Aussie’ was ultimately not pushed onto a downtrend for long. The dovishness of comments from European Central Bank (ECB) President Mario Draghi, which suggested further monetary loosening was likely in store for the Eurozone, helped to drive up risk appetite on Thursday. Confidence continued to rise as the end of the week saw global markets staging a sustained resurgence, with an uptick in oil prompting a return to a more bullish outlook. In spite of a stronger-than-expected US Manufacturing PMI this saw the AUD/USD exchange rate hold an uptrend heading into the weekend.