Surprisingly Dovish RBA Minutes Dent Australian Dollar US Dollar (AUD/USD) Exchange Rate
A dovish set of Reserve Bank of Australia (RBA) meeting minutes were not enough to keep the Australian Dollar to US Dollar (AUD/USD) exchange rate under pressure for long this morning.
Although the RBA left interest rates on hold at its November meeting the possibility of a rate cut was discussed, fuelling bets that such a move is on the cards in the near future.
As analysts at ANZ noted:
‘It seems a November rate cut was actively discussed, but the Board held off to wait for more evidence about the impact of the easing that had already occurred.’
‘We think the minutes support our view that a December rate cut is unlikely, with the next “live” meeting in February.’
With markets pricing in higher odds of an upcoming interest rate cut the Australian Dollar (AUD) came under renewed pressure overnight.
However, this bearishness ultimately proved to be short-lived thanks to a general resurgence in market risk appetite.
US-China Trade Hopes Offer Australian Dollar Boost
Bets that the US and China are still progressing towards a fresh trade agreement, in spite of recent setbacks, gave AUD exchange rates a solid boost across the board.
Although it remains to be seen whether anything will come of the latest positive signals from officials this did not prevent a general uptick in market risk appetite.
This helped to limit the positive impact of better-than-expected US building permits and housing starts figures, even as the US construction sector showed signs of renewed strength.
With markets betting that the two sides will reach an agreement before the end of the year, avoiding the imposition of fresh US tariffs on Chinese exports, investors saw limited incentive to favour the US Dollar (USD).
USD Exchange Rates Vulnerable to Less Hawkish Set of FOMC Minutes
The mood towards the US Dollar could sour further on Wednesday, meanwhile, if the latest set of Federal Open Market Committee (FOMC) meeting minutes show a dovish tilt.
Evidence that US policymakers are less averse to cutting interest rates further would leave USD exchange rates biased to the downside.
On the other hand, if the Fed shows greater resistance to the prospect of looser monetary policy this could encourage the US Dollar to return to a positive footing.
As the White House is likely to continue exerting pressure on the central bank to deliver further easing, though, any reassurance from the minutes could prove short-lived in nature.
Australian Dollar Support Set to Fade on Leading Index Deterioration
Confidence in the outlook of the Australian economy could diminish further tomorrow, however, if October’s Westpac leading index slips deeper into negative territory.
Evidence that economic momentum continued to weaken at the start of the fourth quarter would give investors fresh incentive to sell out of the Australian Dollar.
Even if market risk appetite remains elevated fresh signs of weakness within the Australian economy could drag the AUD/USD exchange rate into a renewed decline.
Unless the leading index delivers surprise growth on the month AUD exchange rates look set to unwind their gains in the near term.