Safe-haven demand pushed the Australian Dollar to US Dollar exchange rate down last week.
Last week, the Bank of Japan’s decision not to cut interest rates spurred a massive increase in safe-haven demand as traders piled into the Yen ahead of any further adjustments to the Bank’s negative interest rate. Naturally, if one safe-haven currency tracks well it tends to pull the others up with it.
However, the growing pro-EU sentiment in the UK following the tragic murder of Labour MP and ‘Remain’ campaigner Jo Cox has calmed market jitters somewhat, affording investors the chance to speculate in a little more risky fashion.
Due to the swing in sentiment, the AUD/USD pairing has recorded steady gains since Friday and is continuing the trend so far this week.
Currently the AUD/USD pairing is trading at 0.7513.
‘Aussie’ (AUD) Records Steady Gains
At the start of the week movement in the AUD/USD pairing was mostly due to market sentiment. In the UK ‘Remain’ continued to garner support on Monday. As a result of the Pound’s performance, markets were placated somewhat and risk aversion fell significantly, affording the pairing further increases.
From the beginning of Monday’s session the Aussie rallied over 0.7 cents on the US Dollar to end the day at 0.7464.
Tuesday saw a smattering of data from both continents. First quarter house prices for Australia fell almost 2% compared to last year, pointing to some deflation within the Aussie property market.
Federal Reserve Chairwoman Janet Yellen addressed the senate banking panel in a very dovish manner, referring to outside risk factors such as the upcoming Brexit referendum when talking about leaving rates on hold until the fog of doubt clears. Yellen made it clear that, while a rate hike may still be on the table, the Fed will have to wait for appropriate circumstances before committing.
Today, the Australian Westpac Leading Index printed favourably, showing an increase up to 0.21%. This could be indicating the commodity crisis of recent times is loosening its stranglehold on the Aussie economy.
Referendum will Dominate Market Movement
It looks like absolutely no impactful Australian ecostats will be released this week but Thursday’s EU referendum has potential to affect the Aussie. If the result is ‘Remain’ then the market may feel very confident, resulting in a decrease in risk aversion, pointing yield-hungry investors towards the risky Australian Dollar.
Chairwoman Yellen is expected to speak to the House Financial Services Committee later today so traders will be listening out for any indicators of the Fed’s outlook.
US oil inventories are set for release later and could also have an impact on the Dollar as it remains one of the US’s largest exports.
Thursday holds some interesting data but will likely be overshadowed as the Brexit vote takes place. US initial jobless claims and a Markit manufacturing PMI have potential to boost or devalue the US Dollar, if they can find attention amidst the swirling attention vortex that will be the referendum.
And so it arrives. Tomorrow’s referendum is set to cause long lasting repercussions in the event of either result. Exit polls will give us an early glimpse at the prevailing opinion but after last year’s general election in the UK, and the failure of pollsters to even hint towards the result, the public has lost faith in the surveys.
On Friday, US durable goods orders are set for release, this data tends to be an indicator of longer-term confidence as durable goods requite a substantial investment and tend to be the first sector that falls if consumer spending is limited. A good print could bode very well for the US Dollar.
The future of almost any pairing will be much easier to discern following tomorrow’s result. No one knows for certain what would happen in either eventuality so everyone will be holding their breath as they await the results coming in.