Australian Dollar to US Dollar Exchange Rate Tumbles despite Rising US Growth Fears
The Australian Dollar to US Dollar (AUD/USD) exchange rate trended near its worst levels today, despite the US economic outlook worsening this week. This has been due to this week’s market reaction to a seemingly more dovish Reserve Bank of Australia (RBA).
AUD/USD has been falling consistently since mid-September, and following last week’s modest slip in the interbank region of 0.67 the pair is on track to see a more notable fall this week.
At the time of writing, AUD/USD was trending in the interbank region of 0.66, and was just above its worst levels in a decade.
These worst levels for the Australian Dollar to US Dollar (AUD/USD) exchange rate have come despite the latest US data indicating that the US economic outlook isn’t exactly bullish either.
Australian Dollar (AUD) Exchange Rates Slump on Reserve Bank of Australia’s (RBA) Dovish Shift
This week has seen major weakness in the Australian Dollar (AUD), as investors digest a more dovish than expected stance from the Reserve Bank of Australia (RBA).
The RBA cut Australian interest rates yesterday as many analysts predicted, but the bank’s tone was also notably more dovish.
After doubting the potential effectiveness of ultra-loose monetary policy in other recent decisions, the bank said this week that further easing was likely on the way.
RBA Governor Philip Lowe blamed the US-China trade was as being part of the reason for economic uncertainty, and the bank is also eager to achieve Australia’s unemployment and inflation targets.
According to Sean Callow, Senior Currency Strategist at Westpac:
‘The reference to full employment was a bit more aggressive,
The Reserve Bank does not want to do anything to encourage any thinking that easing is over.’
US Dollar (USD) Exchange Rates Strength Limited as US Economic Outlook Worsens
The Australian Dollar to US Dollar (AUD/USD) exchange rate’s big losses this week have more to do with Australian Dollar (AUD) weakness than US Dollar (USD) strength, as the US currency outlook has also been dampened by this week’s news.
Yesterday saw the publication of ISM’s US manufacturing PMI from September. The figure was forecast to climb out of contraction with a result of 50.1, but instead the contraction deepened to a concerning 47.8.
It was the worst US manufacturing PMI from ISM in over a decade, worsening concerns about the impact of the global growth slowdown on the US economy.
However, while this news dampened the US economic outlook, the US Dollar is a popular safe haven currency and is still benefitting from economic and central bank concerns in other major economies.
As the Reserve Bank of Australia (RBA) interest rate is expected to go even lower and US-China trade uncertainties persist, investors have had no real reason to sell the US Dollar over the ‘Aussie’.
Australian Dollar to US Dollar (AUD/USD) Exchange Rate Investors Await Major Thursday Data
Could the Australian Dollar (AUD) recover from this week’s bearish performance? It would likely require some stronger than expected Australian ecostats to offset dovish Reserve Bank of Australia (RBA) speculation.
Thursday’s Asian session will see the publication of Australia’s services PMI from September, which is expected to show modest growth. Australia’s August trade balance will be published as well.
If the day’s Australian data beats forecasts, it could bolster hopes that Australia’s economy will rebound. The Australian Dollar would also find support if US-China trade relations are perceived as improving.
However, failing that the only real chance for AUD/USD to rise would be poor US data.
Tomorrow’s US non-manufacturing PMI from ISM, or August factory orders, could lead to Australian Dollar to US Dollar (AUD/USD) exchange rate gains if they disappoint investors.