AUD/USD Exchange Rate Rangebound as Coronavirus Fears Weigh on ‘Aussie’
The Australian Dollar US Dollar (AUD/USD) exchange rate held steady this morning, with the pairing currently trading around $0.659 after yesterday’s rise in January’s Australian unemployment has left some ‘Aussie’ traders wary of a rate cut from the Reserve Bank of Australia (RBA).
Kim Mundy, a strategist at Commonwealth Bank of Australia, confirmed these fears, saying:
‘A rising unemployment rate, given a lift in the participation rate and despite stronger than expected employment growth, is consistent with more monetary policy easing. Our house view is for the next 25bp rate cut in April 2020. Futures markets are pricing a 25% chance of a 25bp rate cut in April.’
Last night also saw Australia’s manufacturing PMI remain mired in contraction territory at 49.8, although this beat the forecast decrease of 48.9.
CBA Senior Economist Gareth Aird was downbeat in his analysis, commenting:
‘Whilst this is clearly a disappointing result, it is not altogether surprising given the two exogenous shocks that have hit the Australian economy – the bushfires and the coronavirus (Covid-19).’
The AUD/USD exchange rate continues to be restrained by China’s coronavirus crisis, with ‘Aussie’ investors becoming increasingly concerned that Australia’s trade-reliant economy could be impacted by a slowing Chinese economy in the first-quarter.
USD/AUD Exchange Rate Steady, US Markets Brace for US Manufacturing PMI
The US Dollar (USD) failed to make much headway on the ‘Aussie’ today as US markets brace for today’s release of the flash US Markit Manufacturing PMI for February, which is expected to ease slightly from 51.9 to 51.5.
Today will also see the release of the US home sales report. Any uptick in America’s housing sector could provide some uplift for the ‘Greenback’.
The USD/AUD exchange rate has remained subdued, however, as China’s coronavirus epidemic is beginning weigh on markets more broadly, leaving US Dollar investors jittery on the prospect that this could also provide a drag on the American economy.
However, after Richard Clarida, the Vice Chairman of the Federal Reserve, said that he doesn’t expect a rate cut from the central bank any time soon, USD investors have remained generally optimistic.
Clarida commented that the ‘fundamentals in the US are strong’ despite the bank monitoring the coronavirus epidemic.
He also added:
‘What are would be looking for is some body of evidence that suggests that we need to make a material reassessment of our outlook, and certainly we have not done that yet. But we are monitoring, because China is a huge part of our economy.’
AUD/USD Outlook: Could the ‘Aussie’ Fall on Weak Construction Data Next Week?
US Dollar (USD) investors will be looking ahead to Monday’s release of January’s Chicago Fed National Activity Index. However, as this is forecast to fall to -0.92, we could see USD lose some of its gains against the Australian Dollar.
Australia’s data calendar is sparse next week, with Wednesday’s Australian Construction Work Done report for the fourth-quarter likely occupying ‘Aussie’ investor’s attention. If Australia’s construction sector continues to fall, however, we could see the AUD/USD exchange rate sink.