Australian Dollar to US Dollar Exchange Rate Pressured by Reserve Bank of Australia Rate Cut Expectations
After plunging last week on the latest disappointing Australian data as well as a resurgent US Dollar (USD), the Australian Dollar to US Dollar (AUD/USD) exchange rate has seen steadier movement this week so far.
Last week’s weak Australian data and US Dollar rise pushed AUD/USD down over a cent, but the pairing was able to hold above the mid-week’s three month interbank low of $0.69.
Since markets opened on Monday, AUD/USD has been trending with an upside bias, but its gains have been modest at best.
Investors are selling the US Dollar on mixed US data and speculation about a Federal Reserve interest rate cut, but Reserve Bank of Australia (RBA) interest rate cut expectations are keeping the Australian Dollar (AUD) from capitalising on that weakness.
Australian Dollar (AUD) Exchange Rates Fail to Capitalise on Rival Weakness
The Australian Dollar (AUD) has seen bearish performance over the past week. That looks unlikely to change in the coming days as data continues to disappoint and investors remain convinced that the Reserve Bank of Australia (RBA) will cut Australian interest rates soon.
After weeks of hopes that Australia’s economy was resilient enough for the RBA to remain neutral on monetary policy, last week saw RBA interest rate cut bets surge following a disappointing Australian inflation report.
As Australian price pressures were much weaker than most analysts expected, investors began to bet that the RBA could actually cut interest rates within the next few months.
This week’s data has been unable to offer the Australian Dollar any fresh support either. In fact, investors found the trade-correlated ‘Aussie’ even less appealing after China’s latest manufacturing PMI stats fell short of forecasts yesterday.
This is because China is Australia’s biggest trade partner, and the Australian currency is often seen as a proxy for Chinese economic activity.
US Dollar (USD) Exchange Rates Sold as US Data Continues to Fall Short
Strong demand for the US Dollar (USD) was cut short at the end of last week, as details of the latest US growth data indicated that inflation in the US was actually much weaker than expected.
This was reflected on Monday when March’s US Personal Consumption Expenditure (PCE) report was published, and most figures fell short of expectations.
Concerns that US inflation was weakening left investors speculating that the Federal Reserve may even be pressured to cut US interest rates in the foreseeable future, a dovish shift from the expectation for more interest rate hikes seen at the beginning of the year.
The US Dollar has been sold since then, and the currency’s appeal wasn’t helped by yesterday’s disappointing US Chicago PMI from April, which plunged from 58.7 to 52.6.
Australian Dollar to US Dollar (AUD/USD) Exchange Rate Investors Anticipate Fed
While the Federal Reserve is not expected to cut US interest rates, investors are still anticipating the tone at this evening’s Federal Reserve policy decision.
The Fed’s reaction to recent signs of slowdown in US inflation could be influential for the US Dollar (USD) outlook.
If the Fed seems dovish in response to slowing US inflation, AUD/USD is more likely to climb as Fed rate cut bets would rise.
On the other hand, if the bank maintains a neutral tone despite the weakness in US data, the US Dollar’s resilience could come back into play and AUD/USD would become less appealing.
The Australian Dollar (AUD) is more likely to be influenced by Australian data and trade developments in the coming sessions, but these stats are unlikely to be influential enough to influence RBA interest rate cut bets.
Still, if Australia’s April services PMI shows a surprisingly strong rebound on Friday, RBA rate cut bets may diminish and the Australian Dollar to US Dollar (AUD/USD) exchange rate could recover further.