Australian Dollar to US Dollar (AUD/USD) Recovers Despite Market Risk-Aversion
Earlier in the week, the Australian Dollar to US Dollar (AUD/USD) exchange rate slid as markets were hesitant to buy risk-correlated currencies like the Australian Dollar (AUD). Nevertheless, some strong Australian data bolstered demand for the ‘Aussie’ today.
AUD/USD climbed slightly overall last week despite tumbling for most of the week, and if risk-sentiment rises the pair could rise further this week. AUD/USD opened the week near the interbank level of $0.71 and is currently trending closely above that level.
Overnight, Australian Dollar investors reacted positively to Q4 Consumer Price Index (CPI) inflation rate results.
This made it easier for the ‘Aussie’ to climb versus the US Dollar (USD), which has been dampened by market uncertainty regarding US-China trade negotiations and anticipation for the Federal Reserve’s upcoming January policy decision.
Australian Dollar (AUD) Exchange Rate Pressure Lightens as Inflation Figures Beat Forecasts
Last week saw concerns surge that the Reserve Bank of Australia (RBA) could be closer to cutting interest rates than hiking them due to news that Australian banks were hiking up mortgage rates.
As a result, this week’s stronger-than-expected Australian inflation rate report helped to ease concerns about price pressures – slightly.
Australia’s Consumer Price Index (CPI) inflation rate report for Q4 2018 beat expectations in both major prints. The quarterly figure rose from 0.4% to 0.5% while the yearly rate slipped to 1.8% rather than the forecast 1.7%.
According to Robert Carnell from ING Bank, this doesn’t exactly take the chances of an RBA rate cut off the table:
‘It might have been a shade better than had been expected, but Australian 4Q18 inflation is still heading further away from the RBA’s target midpoint, not closer to it.’
Nonetheless, the better data did make investors more hopeful that the RBA would be able to avoid a rate cut. This helped the Australian Dollar (AUD) to strengthen despite risk-aversion earlier in the week.
US Dollar (USD) Exchange Rates Unappealing Amid US Political Jitters
Despite fresh US-China trade tensions making investors more hesitant to take risks, the safe haven US Dollar (USD) has failed to benefit much from the fresh safe haven demand.
As US-China trade tensions, US political shutdown concerns and Federal Reserve uncertainties may all have some kind of negative impact on the US economy, the US Dollar’s appeal as a safe haven has been lessened.
Instead, investors seeking safe havens have been buying currencies like the Japanese Yen (JPY) and Swiss Franc (CHF).
Yesterday, US-China relations worsened as US authorities announced charges on Chinese tech giant Huawei.
There are also concerns that despite the US government shutdown only recently ending, there could be another shutdown within a matter of weeks. These factors are keeping pressure on the US Dollar this week.
Australian Dollar to US Dollar (AUD/USD) Exchange Rate Traders Anticipate US Developments
The Australian Dollar to US Dollar (AUD/USD) exchange rate may be in for further volatility and shifts within the coming days, as key US news developments are anticipated.
On Wednesday evening, the Federal Reserve will hold its January policy decision.
In its December decision, the bank was much more hawkish than markets expected and this caused confusion among investors. If the bank’s tone moderates slightly in today’s decision it could help the US Dollar to steady.
US-China trade negotiations will also resume today, but analysts are concerned that following this week’s Huawei news they are unlikely to go particularly well.
If US-China trade tensions worsen, this would dampen demand for the Australian Dollar (AUD) but could weaken US Dollar (USD) sentiment as well.
Data due later in the week, including Australian export and import prices and manufacturing PMI data for both Australia and the US, could also drive some movement in the Australian Dollar to US Dollar (AUD/USD) exchange rate.