Australian Dollar to US Dollar (AUD/USD) Exchange Rate Fails to Hold Weekly Highs as Risk-Sentiment Slips
Weakness in the US Dollar (USD), combined with market appetite for more risky investments amid US economic concerns, briefly sent the Australian Dollar to US Dollar (AUD/USD) exchange rate surging at the beginning of the week.
After opening the week at the interbank level of $0.70, AUD/USD surged and briefly trended over half a cent higher, until last night.
However, when the Reserve Bank of New Zealand (RBNZ) held its March policy decision during this morning’s Asian session, AUD/USD shed over half of those gains.
Investors became more hesitant to take risks again as the bank took a more dovish stance than expected.
US Dollar movement, on the other hand, benefitted from the risk-off movement while investors awaited more influential US data due in the coming days.
Australian Dollar (AUD) Exchange Rates Knocked by Reserve Bank of New Zealand (RBNZ) Decision
While the Reserve Bank of Australia (RBA) has already taken a more dovish stance in response to signs of slowing global growth, market concerns about interest rate cuts being possible this year were slightly lightened by last week’s strong Australian unemployment rate.
This caused stronger Australian Dollar performance at the beginning of the week, but investors reassessed their bullishness on the ‘Aussie’ following last night’s surprisingly dovish policy statement from the Reserve Bank of New Zealand (RBNZ).
In a sharp shift that was much more dovish than analysts had expected, the RBNZ expressed significant concern about slowing global growth hitting economies like Australia and China, and announced that its next change to policy was likely to be a rate cut.
With expectations of a RBNZ rate cut suddenly higher and weakness in the Australian economy one of the noted reasons for it, the Australian Dollar (AUD) slumped in response to the news.
US Dollar (USD) Exchange Rates Benefit from Risk-Aversion
At the beginning of the week, concerns over a slowing US economy, as well as higher risk-sentiment, caused broad US Dollar (USD) weakness.
Since last night though, investors have become more hesitant to take risks again in response to various factors such as a more dovish Reserve Bank of New Zealand (RBNZ), as well as news that US Treasury bond yields had recovered.
On top of this, weakness in the Eurozone economic outlook has supported the US Dollar. The Euro (EUR) is the US Dollar’s biggest rival and the Dollar often benefits from Euro weakness.
The latest US data has done little to influence US Dollar demand. Yesterday’s housing data was mixed, as was the manufacturing data published at the beginning of the week. This is leaving USD investors anticipating upcoming US trade and growth data.
Australian Dollar to US Dollar (AUD/USD) Exchange Rate Investors Anticipate Shifts in Risk-Sentiment
With not much Australian data due for publication this week, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to be driven by potential shifts in global risk-sentiment, as well as upcoming major US data.
The Australian Dollar (AUD) was shocked lower by the Reserve Bank of New Zealand’s (RBNZ) dovishness, but developments making investors more comfortable taking risks would bolster AUD demand again.
For example, optimistic developments regarding US-China trade negotiations, as well as notable weakness in US data, could make investors more willing to take risks and buy the ‘Aussie’.
US Dollar (USD) investors will be anticipating today’s US trade balance data, as well as tomorrow’s Q4 US growth rate results and Friday’s Personal Consumption Expenditure (PCE) inflation data.
With the Australian Dollar to US Dollar (AUD/USD) exchange rate still above the week’s opening levels, AUD/USD may still be on track to sustain gains unless upcoming US data is highly impressive.