The Australian Dollar has enjoyed a steady series of gains over the past month, but struggled to maintain strength after this week’s huge ‘Panama Papers’ scandal sent investors looking for safer ground.
Australian Data Fails to Support AUD/USD
The AUD/USD exchange rate began this week on a high of 0.7682 and as of Thursday’s session trends in the region of 0.7558.
While up against some of its other rivals, the Australian Dollar has been largely unable to sustain gains against the US Dollar as a result of underwhelming domestic data.
Australian retail sales released on Monday printed at 0.0%, below forecasts of 0.4%. Building approvals, on the other hand, decreased less than expected and printed at -9.0%.
February’s key trade deficit for the region also unfortunately worsened to -3410m. It was initially expected to narrow to -2500m from its January sum of -3156m.
RBA Concerns on AUD Overvaluation Slows AUD/USD Uptrend
The RBA released its monthly interest rate decision on Tuesday. As many analysts and investors predicted, the rate was left at 2.00%.
This marks the eleventh month in a row that Australia has kept this record-low interest rate.
Investors were, however, relieved that an interest rate cut doesn’t seem to be on the cards for the immediate future.
Despite this, the RBA began to show concerns that the ‘Aussie’ was becoming overvalued and an overpriced domestic currency could warrant some policy alteration later in the year. According to the
Sydney Morning Herald,
the AUD/USD pair has risen a whopping 4.3% so far this year.
While analysts still do not expect the RBA to cut – or hike – the key interest rate, many have advised that caution be exercised so the ‘Aussie’ does not harm the Australian economy from becoming too strong.
‘Panama Papers’ Leak Inspires Strong Risk-Off Movements, Risky ‘Aussie’ Weakens
The scandal lighting up headlines this week is the ‘Panama Papers’ leak. Millions of documents detailing the usage of ‘tax havens’ for purposes of tax avoidance and money laundering were released on Monday, causing a public and political outcry.
The leak incriminated various members of the world’s political and societal elite.
Amid fears that ecopolitical situations around the globe could become unstable while politicians debated and defended their positions, a strong risk-off movement had investors flooding towards ‘safe-haven’ currencies like the US Dollar.
Investors found the ‘Greenback’ preferable to the Australian Dollar this week despite news of positive growth from China, Australia’s strongest trade partner. The news boosted AUD in other pairs, but risk-off sentiment still had it floundering against USD.
AUD/USD Exchange Rate Forecast
The most significant cause in AUD/USD movement as the week draws to a close will be tonight’s statements from Federal Reserve Chairwoman Janet Yellen.
Yellen is set to speak in New York tonight with Bernanke, Greenspan and Volcker, and she may give some indication on the future of Fed rate decisions.
Fed Minutes released earlier this week revealed that some policymakers were up for the possibility of an April rate hike, but the consensus moved to hold rates.
Hints that some of the year’s forecast 50 basis points of rate increases could be used in the next few months could further improve ‘Greenback’ strength – a possibility backed up by China’s continued growth.
Maintaining a definitively dovish tone will likely influence some risk-on movement, however.
At the time of writing, AUD/USD is down almost -0.7%.