AUD/USD Exchange Rate Forecast: Australian Dollar Rises after Business Confidence Booms

Historically High Business Survey Score Boosts AUD/USD Exchange Rate

The Australian Dollar to US Dollar exchange rate (AUD/USD) has rose slightly today, thanks to highly supportive business confidence data.

The NAB business confidence reading for January rose from 10 points in December to 12 points in the first month of 2018, the best score since April 2017.

Additionally, perceptions of current business conditions have also improved, providing further support to the AUD/USD exchange rate.

Economists from NAB have partly discounted the effects of seasonal fluctuations, saying:

‘The business conditions index has been relatively volatile in recent months, with changes in seasonal patterns playing a part, however on a trend basis conditions remain elevated.’

US Dollar to Australian Dollar Exchange Rate Declines despite Strong Inflation Stats

Conversely, a negative response to recent US inflation and sales data has dragged the US Dollar to Australian Dollar exchange rate down.

Although inflation remained stable against forecasts in January, the retail sales slowdown was the overriding negative force on US Dollar demand.

Looking at how the inflation data could affect the odds of a Federal Reserve interest rate hike, ING Bank economist James Knightly said:

‘Taking this altogether we expect core inflation to be back above the Federal Reserve’s 2% target in March with headline inflation hitting 3% by the summer. In turn this healthy growth, rising inflation environment means that we consider there to be upside risk for our call of three Fed rate hikes in 2018.’

US Retail Sales Slump Weighs on USD/AUD Exchange Rate Performance

On the other side of Wednesday’s high-impact US data was the fact that retail sales had slowed considerably in January.

Month-on-month sales dropped from 0% to -0.3%, while the year-on-year reading slowed from 5.2% to 3.6%.

These were the worst readings in 11 months in the US.

Although some economists believe this is simply a seasonal anomaly, others are more cautious about predicting future US sales stats.

Will the Australian Dollar to US Dollar Exchange Rate Rally on Upcoming Jobs Data?

After the dust from the US inflation rate results settles, the Australian Dollar to US Dollar exchange rate could move in reaction to Australian jobs data out tomorrow.

The early-morning Australian employment and unemployment stats could support the AUD/USD exchange rate, although the jobless rate isn’t expected to change.

Even if January’s unemployment rate reading remains at 5.5%, however, the Australian Dollar could still rise if the employment change figure increases, as forecast.

The number of employed people in Australia is predicted to rise by 15k in January, which could be enough to boost demand for the Australian Dollar.

Higher full-time employment figures may also support the currency, as these positions are considered more economically beneficial than part-time work.

In the US the rest of the week will likely be quiet, with the last notable news being some University of Michigan confidence data out on Friday.

The University’s initial consumer confidence reading for February is predicted to show lower optimism, which could cause a drop in the USD/AUD exchange rate.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard