Australian Dollar to US Dollar (AUD/USD) Exchange Rate Hits Two-Month High despite Central Bank Divergence

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Weaker Following Latest Central Bank Developments

While the Australian Dollar to US Dollar (AUD/USD) exchange rate is still on track to close higher this week, the latest news from the Federal Reserve and Reserve Bank of Australia (RBA) has caused investors to knock the pairing off its best levels.

AUD/USD gained almost a cent in the first half of the week as global risk-sentiment rose and investors sold the US Dollar (USD).

Ultimately though, the US Dollar recovered some of its losses and AUD/USD shed around half of those gains.

Most of this week’s data has been low-influence compared to the week’s developments in politics and central bank news.

The primary cause for AUD/USD’s late-week slip was market expectations that the Reserve Bank of Australia (RBA) would keep monetary policy frozen for some time, while the Federal Reserve indicated it would continue to hike US interest rates.

Australian Dollar (AUD) Exchange Rates Fall from Highs Despite Reserve Bank of Australia (RBA) Optimism

The Australian Dollar (AUD) has enough drive to help it sustain some gains against major rivals like the US Dollar (USD) this week, but ultimately investors were disappointed that the RBA did not sound very hawkish.

During its latest statement on monetary policy, the RBA announced that it expects Australian growth to continue rising, unemployment to fall and inflation to gradually edge higher.

However, despite the bank’s overall optimism about the economic outlook, it remained cautious about issues regarding the housing market and household consumption. Inflation uncertainties also persisted.

As a result of the bank’s tone, markets expect the RBA is still some way away from hiking interest rates from their current lowest levels on record.

The RBA’s lack of hawkishness regarding interest rates has deepened the perceived monetary policy divergence between Australia and the US.

Even if investors were more willing to buy trade-correlated currencies like the Australian Dollar over the last week, this perceived policy divergence meant AUD/USD was unable to hold its best levels.

US Dollar (USD) Exchange Rates Recover Some Losses as Federal Reserve Remains Hawkish

Earlier in the week, investors sold the US Dollar (USD) in reaction to the outcome of the 2018 US midterm elections.

The results indicated that US President Donald Trump would struggle to push further fiscal policy through US Congress, which dampened market demand for safe haven currencies like the US Dollar.

US Dollar traders also became briefly anxious about whether these developments or the recent US stock market slump could impact the Federal Reserve’s monetary policy outlook.

However, the Federal Reserve stuck by its hawkish stance during the November policy decision meeting on Thursday evening, signalling that US interest rates would likely be hiked in December.

Analysts also predict the bank will hike US interest rates twice in 2019.

This calmed market concerns about how US political news could impact the monetary policy outlook. As the midterm results largely met expectations, the US Dollar’s losses this week have ultimately been limited.

Australian Dollar to US Dollar (AUD/USD): Investors Anticipate Australian Job Stats

The Australian Dollar to US Dollar (AUD/USD) exchange rate could see further gains next week, despite ongoing concerns about deepening central bank policy divergence.

As some key Australian ecostats will be published throughout the week, investors will get a better idea of whether or not the Reserve Bank of Australia (RBA) was right to be optimistic about its economic outlook.

Australian business confidence data will come in on Tuesday, followed by consumer confidence and key Q3 wage price data on Wednesday.

Perhaps the most influential Australian data next week will be Thursday’s job market report from October. As the RBA has said it expects unemployment to keep falling, AUD may weaken if unemployment comes in worse than expected.

The US Dollar, on the other hand, could see some more support and avoid losses if upcoming US data impresses investors.

US inflation data on Wednesday and retail sales stats on Thursday could drive some movement in AUD/USD if they surprise investors.

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