Australian Dollar US Dollar (AUD/USD) Exchange Rate Slumps on Rising Odds of RBA Interest Rate Cut
Demand for the Australian Dollar (AUD) diminished sharply in response to the latest commentary from Reserve Bank of Australia (RBA) Governor Philip Lowe.
Investors were caught off guard by the dovishness of Lowe’s speech, which indicated that the central bank will discuss lower interest rates at its next meeting.
Lowe expressed concern over the current unemployment rate, noting that inflation would not meet the RBA’s 2-3% target unless the labour market tightened.
As a result, the odds of a June interest rate cut rapidly increased in response to the comments, driving the Australian Dollar to US Dollar (AUD/USD) exchange rate into a fresh slump this morning.
Temporary Easing in Trade Anxiety Fails to Drag on US Dollar (USD)
Although the Trump administration began to row back on some of its newly implemented restrictions on Chinese telecoms giant Huawei this was not enough to dent the US Dollar (USD).
While the relaxing of restrictions offered some reassurance to investors this failed to reignite any particular sense of market risk appetite, keeping USD exchange rates on a positive footing.
The impact of yesterday’s disappointing Chicago Fed national activity index also diminished overnight, limiting the downside pressure on the US Dollar.
Even though concerns over the underlying health of the world’s largest economy persist the AUD/USD exchange rate failed to find any degree of support today.
Leading Index Contraction Forecast to Add to Australian Dollar (AUD) Weakness
Tonight’s Westpac leading index is unlikely to offer a rallying point to the Australian Dollar, with forecasts pointing towards a modest contraction on the month.
Evidence that the Australian economy lost further momentum at the start of the second quarter could put additional pressure on AUD exchange rates, given the already dovish bias of the RBA.
With policymakers looking set to loosen monetary policy imminently any underwhelming data is likely to put a further dampener on the mood towards the Australian Dollar.
On the other hand, a positive reading from the leading index could help the AUD/USD exchange rate to regain at least some of its lost ground.
Any further easing in global trade tensions could equally encourage the Australian Dollar to return to a positive footing, in the short term at least.
US Dollar (USD) Exchange Rates Vulnerable Ahead of Fed Meeting Minutes
Further volatility could also be in store for the US Dollar with the release of the Federal Open Market Committee’s (FOMC) latest set of meeting minutes.
Signs that the US central bank is also shifting towards a cautious outlook would leave USD exchange rates exposed to a fresh bout of selling pressure.
Any indication that interest rates are at risk of a cut before the end of the year may drive the US Dollar lower across the board.
However, if policymakers express a sense of confidence in the resilience of the US economy this could see the AUD/USD exchange rate shedding fresh ground and falling towards a fresh multi-year low.