Australian Dollar Live: AUD/USD Exchange Rate Fluctuates Before US Inflation Data

Update: Dipping US Inflation Could Send Australian to US Dollar (AUD/USD) Exchange Rate Higher

The Australian Dollar to US Dollar (AUD/USD) exchange rate was left trending in a narrow range ahead of the release of December’s US inflation figures.

The nation’s consumer price index is expected to come in at 0.1% on the month (down from 0.4% in November) and 2.1% on the year, down from 2.2%.

As slowing US inflation could prevent the Federal Reserve from upping its plans to increase borrowing costs this year, an on-forecast result may weaken the US Dollar and send the AUD/USD exchange rate higher.

Australian Dollar Live: AUD/USD Exchange Rate Rises on Sunny Employment Outlook

Market research firm Roy Morgan Research has predicted Australian employment rate grew in December 2017, ahead of next week’s actual jobs data releases.

The company predicts that while the unemployment rate may not change, the number of employed persons may still have risen significantly.

Explaining the contrasts between unemployment and employment figures, Roy Morgan Chief Executive Officer Michele Levine explained:

‘The strong jobs growth in the year to December reversed a trend of the last few months of slower jobs growth and was the largest year-over-year jobs growth since June.

However, although an improvement over recent months, jobs growth hasn’t been fast enough to keep a lid on unemployment which has also increased over the past year’.

Australian Dollar traders have largely focused on the upside of this prediction, which accounts for the recent AUD/USD exchange rate rise.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Firms on Above-Trend Consumer Confidence

In addition to their optimistic outlook on Australian unemployment, Roy Morgan analysts have recently upgraded their consumer confidence score.

The weekly score has risen significantly in the first week of 2018, up from 116.5 points to 122, representing a 4.7% increase.

The news was accompanied by remarks from ANZ Head of Australian Economics David Plank, who stated that even with on-trend confidence growth in January the reading was better than usual:

‘Continued strength in the labour market, and a strong performance in the Ashes series likely helped sustain the cheer among consumers.

It needs to be acknowledged that consumer confidence usually rises in the first reading for January. Still, the increase this year is stronger than the 3.6% average lift in confidence for the past nine ‘annual turns’, indicating that the gain in confidence is more than just seasonal.

Confidence has been trending higher since the low for 2017 in late August.

We’ll find out in February (with the next wages data) whether a pick-up in wage growth has also contributed to the gain in sentiment.’

Caution by Federal Reserve Officials Brings US Dollar to Australian Dollar (USD/AUD) Losses

With little fresh US economic news out today, the US Dollar has declined in value against the Australian Dollar.

The pairing has been harmed by recent comments from officials at the Federal Reserve, the US’s central bank.

Fed officials Neel Kashkari and Charles Evans have both spoken out in favour of leaving interest rates on hold in order to stoke inflation.

This outlook doesn’t sit well with US Dollar traders, who are hoping for three if not four interest rate hikes this year.

While Kashkari and Evans won’t vote on Fed interest rate decisions this year, they are still capable of shifting the US Dollar if traders assume that other Fed members share their opinions.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Could Rally on Forecast-Beating Employment Growth

In the near-term, the Australian Dollar could rise higher against the US Dollar depending on national jobs data out on 18 January.

The unemployment rate isn’t expected to change from 5.4%, but above-forecast growth in employment could raise trader confidence and push the AUD/USD rate higher.

The US Dollar could see notable movement sooner, when inflation rate data is released on 12 January.

For the basic inflation reading, which includes volatile factors such as fuel prices, experts predict a slight slowdown for December.

Slowing inflation reduces the likelihood of the Fed raising US interest rates, so such movements could cause a USD/AUD fall.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon