The Australian Dollar to US Dollar exchange rate was on a downtrend on Friday before the latest US retail sales report. The report caused a surge in demand for risky currencies, allowing AUD/USD to hold its ground near 0.77 as the week drew to an end despite ‘Aussie’ sentiment recoiling slightly following the week’s AUD rally.
Australian Dollar (AUD) Cools After Bullish Week
The Australian Dollar rallied once more this week, peaking at a high not seen since April. The currency’s bullishness has been due to a variety of factors, including strength in the commodity market as well as a weak US Dollar.
Demand for risk-correlated currencies has been high over the last week due to low interest rate hopes for major economies, particularly the US.
This has allowed the overvalued Australian Dollar to continue advancing despite attempts from the Reserve Bank of Australia (RBA) to keep the currency down.
Prices of iron ore, Australia’s most lucrative commodity, rallied earlier this week to over US$60 per barrel due to a surge in demand for the commodity from China.
However, iron ore prices softened towards the end of the week, falling below US$60 per barrel once again. This, as well as investors selling the ‘Aussie’ from its best levels, caused the currency’s rally to slow to a halt by Friday afternoon.
US Dollar (USD) Drops as 2016 Fed Rate Hike Bets Continue Falling
The US Dollar experienced a mixed week as fresh US economic data continued to cause investors to question the likelihood of any Federal Reserve rate hikes taking place before the end of the year.
News that US productivity had contracted for the third consecutive quarter lessened the US Dollar’s appeal earlier in the week, and on Friday the ‘Greenback’ was undermined by a surprisingly poor July retail sales report.
Retail sales were expected to come in at 0.4% in July, but instead stagnated at 0.0%. June’s score of 0.6% being revised up to 0.8% may have softened the Dollar’s losses – however poor retail performance caused hopes for Q3 growth to soften considerably.
This, in turn, caused many analysts to suggest that the Fed didn’t have enough reason to hike US interest rates in 2016, disappointing markets and causing a US Dollar selloff.
AUD/USD Forecast: Will RBA Minutes Weaken the ‘Aussie’?
The seemingly unstoppable Australian Dollar rally appeared to slow on Friday, as other risk-correlated currencies took point from the US Dollar’s slide.
What remains to be seen is how the ‘Aussie’ will behave next week. Will it continue to defy expectations and surge, or will it plunge as it’s sold from its best levels?
Tuesday’s Asian session could be the first opportunity for this, as it will see the publication of the Reserve Bank of Australia’s (RBA) August meeting minutes.
The RBA cut Australian rates on the 2
nd
of August, but failed to talk down the ‘Aussie’ from its highs. As the RBA would prefer the ‘Aussie’s value to drop and normalise, it is possible that the RBA’s minutes will include commentary that could bring AUD down from its highs.
As for the US Dollar, the currency could be due for recovery and next Tuesday’s slew of consumer price data for July could offer it that leg up if inflation beats expectations.
While Fed rate hike bets remain considerably low following recent data, these losses could be minimised slightly if inflation is high enough to put pressure on the Fed.