The Australian Dollar to US Dollar exchange rate was trending near its best 2017 levels on Thursday, but had slipped from its peak due to a mixed Australian employment report and the increasing strength of the US Dollar. AUD/USD continues to test the level of 0.77 at the time of writing after rising from the week’s opening level of 0.76.
Australian Dollar (AUD) Slips as Investors Digest Australian Employment News
The Australian Dollar appeared to have reached the limits of its recent bullish run on Thursday, as the day’s Australian employment results were not strong enough to keep the risky currency at its best levels.
Demand for the ‘Aussie’ slipped as traders were underwhelmed by various details in the January employment figures. In particular, news that full time employment had plummeted by -44.8k despite an increase in overall employment was disappointing.
Employment was expected to increase by around 10k and beat expectations with a print of 13.5k.
Another mixed element of the report was the indication that Australia’s unemployment rate had only improved to 5.7% because the participation rate had unexpectedly dropped to 64.6%.
News that Australian consumer inflation expectations had slipped from 4.3% to 4.1% in February also weighed on ‘Aussie’ demand and prevented it from holding its highs.
US Dollar (USD) Gains Momentum after Week of Higher Fed Hike Bets
This week has seen bets of a March Federal Reserve interest rate hike surge from below 20% to around 40% due to a slew of data and Fed comments.
Federal Reserve Chairwoman Janet Yellen stated earlier in the week that it would be unwise to wait long to hike US rates again in order to capitalise on the current momentum in US economic growth.
Traders became increasingly excited about the prospect of a US interest rate hike sooner rather than later following Wednesday’s slew of impressive US data.
January’s Consumer Price Index (CPI) results improved from 2.1% to 2.5% year-on-year, surpassing the expected result of 2.4%. Monthly inflation doubled to 0.6% despite being projected to remain at 0.3%.
With inflationary pressures up, investors were also impressed by the day’s January US retail sales figures. Retail sales only slowed from 1% to 0.4% month-on-month, surpassing the predicted 0.1%. Yearly retail sales impressed with an improvement from 4.4% to 5.6%.
However, despite the large number of upside factors in USD trade, markets focused on US stocks this week as Trump jitters weighed on the ‘Greenback’s advances.
AUD/USD Forecast: Investors Anticipate Trump’s Tax Reform Plans
Traders have been waiting with baited breath since the beginning of the US Trump administration for Trump to introduce his previously proposed fiscal policy changes.
Proposed with the intention of helping stimulate the US economy, Trump had been frustrating traders in early-February due to his silence over fiscal policy and political controversies.
However, the administration recently confirmed that a new tax reform plan would be introduced in the coming weeks.
This reform, when delivered, is likely to have a significant effect on risk-sentiment. Markets are likely to move from risky currencies like the ‘Aussie’ into ‘safe havens’ like the US Dollar.
This could mark the end of the Australian Dollar’s recent winning-streak.
If no Trump news comes in however, movement in the Australian Dollar to US Dollar exchange rate is likely to be limited.