Australian Dollar to US Dollar (AUD/USD) Outlook Little Changed Following RBA Minutes
Tuesday morning saw the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes report, but it had no notable impact on the direction of the Australian Dollar to US Dollar (AUD/USD) exchange rate.
Due to concerns about the US-China trade war, AUD/USD has seen relatively range-bound movement in recent weeks. Last week saw the pair briefly dip to the interbank level of 0.73, but generally AUD/USD has trended in the region of 0.74.
The Reserve Bank of Australia’s meeting minutes were largely unsurprising, expressing some concerns about domestic issues as well as the potential negative effect of the US trade war.
Meanwhile, the US Dollar’s (USD) performance was mixed as Monday’s US data did little to change the US outlook, and economists continue to warn about the impact US trade protectionism could have on the US economy.
Australian Dollar (AUD) Exchange Rate Strength Limited by Reserve Bank of Australia (RBA) Caution
Another month, and another lack of changes in the Reserve Bank of Australia’s (RBA) monetary policy outlook.
Bullish investors hoping for the RBA to tighten monetary policy any time soon have been left underwhelmed once more, as the bank has maintained that interest rates should remain frozen for the foreseeable future.
The bank’s reasons to remain cautious and leave rates frozen for as long as possible included concerns about Australia’s high household debt, as well as the US-China trade war. According to Paul Dales from Capital Economics:
‘The minutes of the Reserve Bank of Australia’s July meeting confirm that the bank is a long way from raising interest rates and that it is worrying more about a global trade war, the slowdown in China and the high level of domestic debt at home,
If anything, July’s minutes support other evidence that the RBA is becoming a bit more concerned about the outlook.’
As China is Australia’s biggest trade partner and Australia also has strong trade ties with the US, the US-China trade war and slower Chinese data have put pressure on Australia’s economic outlook and the Australian Dollar (AUD).
US Dollar (USD) Exchange Rate Steadies Ahead of Fed Chairman Testimony
On Monday, the US Dollar (USD) was supported by some decent US data but this was not enough to help the currency to climb against the Australian Dollar (AUD).
Investors have been hesitant to sell AUD/USD much more due to key Australian Dollar support levels, and the US Dollar outlook has not become notably more bullish either.
June’s US retail sales results came in at 0.5% month-on-month as expected, and climbed from 6.5% to an impressive 6.6% year-on-year. US business inventories met forecasts too, printing at 0.4%.
Rather than react to data though, investors are anticipating signals on whether or not the US-China trade war could have an impact on the US monetary policy outlook.
With Federal Reserve Chairman Jerome Powell testifying to US Congress on Tuesday, investors hesitated to move on the US currency.
Australian Dollar to US Dollar (AUD/USD) Forecast: Powell Testimony and Australian Job Data Ahead
The Australian Dollar to US Dollar (AUD/USD) exchange rate could continue to trend within a tight region in the coming days, but AUD/USD may see a sudden shift in direction if there are any surprising developments in Central Bank speculation.
Federal Reserve Chairman Jerome Powell will be testifying to US Congress during Tuesday’s American session, then again on Wednesday.
If Powell shows fresh concerns about the potential impact of the US-China trade war or even hints that the trade uncertainties could slow the pace of the bank’s planned interest rate hikes, the US Dollar (USD) would plunge.
This would make it much easier for AUD/USD to recover, as the pair continues to trend close to its lowest levels.
Also worth paying attention to is June’s US housing and building permits data, due on Wednesday, and Australia’s anticipated June job market results on Thursday.
If Australia’s job results beat forecasts, the Australian Dollar to US Dollar (AUD/USD) exchange rate could see an even stronger recovery.