The Australian Dollar to US Dollar exchange rate briefly surged above the level of 0.77 on Tuesday as sentiment for the US Dollar waned. However, despite a poor inflation report for the US the AUD/USD exchange rate fell back to 0.7680 in the American session as the latest RBA minutes weighed the ‘Aussie’ down.
The Australian Dollar has rallied for the last week as a surge of demand for risky, commodity-correlated currencies boosted the ‘Aussie’ as well as its peers.
A rally in the price of Australia’s most lucrative commodity, iron ore, over the last week also helped the ‘Aussie’ to reach new heights against many major rivals. However, as prices of the commodity began to slip on Tuesday, so too did the Australian Dollar.
The end of the currency’s rally was timed well with the publication of the Reserve Bank of Australia’s (RBA) latest meeting minutes. In them, the bank took a surprisingly vague tone despite the decision to cut Australia’s overnight rate in the first week of August.
The minutes of the meeting seemed to show that the bank’s policymakers were generally upbeat despite having cut rates.
However, due to a lack of insight into the short to long term future of monetary policy, investors were hesitant to push the Australian Dollar higher.
There was yet another factor weighing on the Federal Reserve’s rate hike chances after Tuesday’s American session, as the key US Consumer Price Index (CPI) figures heavily disappointed markets.
Consumer prices stagnated in July as expected, following on from June’s slow inflation of 0.2%. Unfortunately, the year-on-year inflation score worsened from 1.0% to 0.8%, letting down an expected slip to 0.9%.
However, better-than-expected housing starts figures for July as well as hawkish statements from Fed policymakers may have muted the US Dollar’s losses and allowed it to recover from its worst levels against the ‘Aussie’.
Housing starts scored 5.1% in June, and were expected to follow with -0.8% in July. However, July’s print came in surprisingly strong at 2.1%.
Comments from New York Fed President William Dudley may have boosted USD too, according to Reuters;
‘The Federal Reserve could possibly raise U.S. interest rates as soon as September, an influential Fed policymaker said on Tuesday in comments that boosted the dollar ahead of next week’s signature meeting of world central bankers.’
While Tuesday’s session may have been the most influential for the US Dollar, there is still big movement potential in the coming days.
Due for publication this morning is Westpac’s leading index report for July, which scored -0.22% in June. This will be followed by Australia’s Q2 wage cost index.
The US Dollar has a chance to recover during Wednesday’s American session if July’s Federal Open Market Committee (FOMC) meeting minutes reveal a hawkish tone for the bank’s policymakers.
However, failing that the US Dollar will likely remain heavily pressured until next week’s Fed meeting at Jackson Hole, and could allow the ‘Aussie’ Dollar some easy advances if Thursday’s key Australian prints beat expectations.
Thursday will see the publication of Australia’s July employment report. While the unemployment rate is expected to remain at 5.8%, any change from this or a surprisingly low or high employment change figure could cause the ‘Aussie’ to drive AUD/USD movement quite strongly towards the end of the week.
At the time of writing, the Australian Dollar to US Dollar exchange rate trended in the region of 0.7680, while the US Dollar to Australian Dollar exchange rate traded at around 1.3020.
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