September’s Australian trade balance surprised to the upside, sending Australian Dollar (AUD) exchange rates on a bullish run.
Markets were encouraged to find that the trade surplus had widened further than forecast from 837 million to 1745 million, suggesting that the economy remains in a fairly robust state of health.
Coupled with an unexpected rebound in building approvals figures, the Australian Dollar US Dollar (AUD/USD) exchange rate enjoyed a solid boost on Thursday morning.
Even though concerns over the outlook of the domestic economy remain, this failed to particularly limit the ‘Aussie’ at this juncture.
Rising copper prices also helped to shore up the antipodean currency, with market risk appetite strengthening once again.
High Odds of December Fed Rate Hike Fail to Support USD Exchange Rates
Confidence in the US Dollar, meanwhile, was slightly more muted in the wake of the Federal Open Market Committee’s (FOMC) November policy announcement.
While the Fed signalled that a December interest rate hike is all but certain, this was not enough to shore up the ‘Greenback’.
Altogether the meeting offered little in the way of surprises, leaving USD exchange rates on a softer footing as policymakers still displayed some uncertainty over the persistent weakness in domestic inflation.
Jitters were also encouraged as markets awaited the announcement of the Trump administration’s choice for the next Federal Reserve Chair, with investors worried over the prospect of a more dovish pick.
Even so, with the latest US data continuing to paint a relatively positive image of the world’s largest economy, the US Dollar is unlikely to remain under particular pressure for long.
US Dollar to Benefit as Non-Farm Payrolls Rebound
The AUD USD exchange rate could falter ahead of the weekend, though, with the release of the latest raft of US labour market data.
Forecasts point towards a strong rebound in the headline non-farm payrolls figure after September’s contraction, with the negative impact of the hurricane season continuing to fade.
This could prompt the ‘Greenback’ to strengthen across the board, with another positive showing likely to encourage the Fed to adopt a faster pace of monetary tightening over the coming year.
However, average weekly earnings are expected to show some loss of momentum, which could discourage policymakers.
Weaker wage growth is unlikely to be enough to derail the prospect of a December rate hike, but this could still dent the appeal of the US Dollar in the short term.
AUD/USD Exchange Rate Volatility Likely on RBA Decision
Further pressure is likely for the Australian Dollar ahead of Tuesday’s RBA policy decision, although no change in policy is expected.
If policymakers opt to maintain a more neutral to dovish tone on monetary policy this could weigh heavily on the ‘Aussie’, indicating that interest rates are likely to remain at their current level for some time to come.
However, any signs that the central bank is taking note of the recent signs of underlying strength within the Australian economy could offer AUD exchange rates a boost.
Stronger showings from the TD Securities inflation estimate and October’s construction PMI may also help to bolster demand for the antipodean currency, especially if market risk appetite remains solid.