Surge in Risk-Correlated Demand Pushes AUD/USD Exchange Rate Higher
The Australian Dollar (AUD) has firmed against the US Dollar (USD) today, rising to a level of $0.74 on the interbank exchange rate.
This is the best level of AUD/USD trading in a week and comes from growing risk sentiment after a high-impact Reserve Bank of Australia (RBA) meeting.
RBA officials left interest rates on hold at 1.5% as expected, but there were hints about a potential rate hike coming in 2019 or 2020.
Outlining the RBA’s GDP and inflation rate forecasts, Governor Philip Lowe said:
‘The [RBA’s] central forecast for the Australian economy remains unchanged.
‘GDP growth is expected to average a bit above 3% in 2018 and 2019. This should see some further reduction in spare capacity.
‘The central forecast is for inflation to be higher in 2019 and 2020 than it is currently.’
A higher rate of inflation increases the odds of a future RBA interest rate hike, as it puts more pressure on policymakers to consider raising rates to combat price growth.
US Dollar to Australian Dollar (USD/AUD) Exchange Rate Drops as US-China Trade Spat Intensifies
On the other side of the currency pairing, the US Dollar (USD) has fallen against the Australian Dollar (AUD) on growing concerns surrounding international trade.
There are few signs that the current trade dispute between the US and China will be diffused, as US President Donald Trump and Chinese state media have been ramping up their rhetoric.
With Mr Trump praising the implementation of tariffs and Chinese media suggesting the tariffs are more damaging to the US than China, USD trader confidence has dropped.
Australian Dollar to US Dollar (AUD/USD) Exchange Rate Forecast: AUD/USD Losses ahead on US Optimism Data?
The Australian Dollar’s (AUD) recent advance against the US Dollar (USD) runs the risk of going into reverse gear when US sentiment stats come out this afternoon.
The IBD/TIPP economic optimism reading for August is expected to show growth from 56.4 points to 57.2, which might be enough to trigger a rise in the USD/AUD exchange rate.
However, a speech by RBA Governor Philip Lowe on Wednesday may either restore the AUD/USD, or prompt further losses.
In the wake of today’s mixed RBA meeting, Mr Lowe is likely to offer a cautious economic outlook, which would drag the Australian Dollar further down.