AUD/USD Exchange Rate in Holding Pattern Ahead of Fed Rate Hike
At the time of writing AUD/USD is largely unmoved from this morning’s opening levels of $0.770 and continues to hold close to a three-month low.
US Dollar (USD) Muted in Anticipation of Fed Rate Hike
The US Dollar is showing limited movement against the Australian Dollar this morning, having given up some of Monday’s gains overnight.
This comes as investors seek to hold their positions in USD in the run up to Wednesday’s rate decision by the Federal Reserve.
Economists overwhelming forecast that tomorrow’s decision meeting will see the Federal Open Market Committee (FOMC) vote to hike rates, with CME’s FedWatch Tool placing the odds of a hike at around 93%.
However with the near-certainty of the hike meaning that it has already been priced in by the majority of investors, it will be the bank’s outlook that markets are more likely to be focused on.
This could see the US Dollar experience some sharp losses if policymakers suggest that subdued inflation may prompt a more cautious approach from the bank in tightening monetary policy.
Australian Dollar (AUD) Steady Following Release of RBA Minutes
Meanwhile the Reserve Bank of Australia’s (RBA) published the minutes from its latest policy meeting earlier this morning, reinforcing the notion that the next hike is still some way off.
This left the Australian Dollar largely at a standstill during the Asian session last night.
The minutes confirmed that the most pressing concern for the RBA is lacklustre wage growth, which remains below expectations despite favourable economic conditions.
The RBA’s minutes read:
‘The improvement in overall conditions had not yet translated into a definitive pick-up in wages growth, which remained low.’
Forward-looking indicators suggested that spare capacity in the labour market would continue to decline gradually over 2018 and, as a consequence, wages growth was expected to rise gradually.’
AUD/USD Exchange Rate Forecast: Will US Dollar Tumble Despite Rate Hike?
Looking ahead the AUD/USD exchange rate will undoubtedly be dominated by the Fed’s rate decision on Wednesday.
Current forecasts see the US Dollar falling in the wake of the meeting, with the Fed unlikely to push for up to four hikes this year as initially suggested.
Meanwhile the focus for AUD investors this week will be on Australia’s latest labour report, due out on Thursday.
Economists predict the figures will show that Australia’s workforce continued to expand at a robust pace in February, possibly lifting the Australian Dollar.
However given the RBA’s recent focus on wages, the accompanying earnings figures may prove to have the greater impact on the ‘Aussie’, with a subdued reading likely to weigh heavily on AUD.