The Australian Dollar to US Dollar (AUD/USD) exchange rate attempted to recover last week but failed in the face of a strengthening US Dollar. However, the pairing tried to rebound again on Monday morning as investors hoped to lock in profit from a two-month low of 0.7241.
Last week AUD/USD dropped for the fourth consecutive weekly session as the Australian Dollar continued to reel from the Reserve Bank of Australia’s (RBA) sudden interest rate cut earlier in the month.
At the time of writing however, investors engaged in profit-taking and the AUD/USD pair was up around 0.4%, trending in the region of 0.7294.
A series of factors besides the RBA weighed on the ‘Aussie’ last week, as not only did investors sell the currency in anticipation of another RBA rate cut being issued in the coming months, but the price of Australia’s most lucrative commodity, iron ore, also fell and dented already-low risk appetite.
Data was also mixed, with the most recent release being May’s consumer inflation expectation, which slowed from 3.6% to 3.2%. Negative data from Australia’s biggest trade partner, China, also weighed down the Australian Dollar.
That being said, the commodity-sensitive ‘Aussie’ may have been bolstered slightly by news that the price of oil rallied over the weekend and that the supply glut had come to a temporary end.
While the ‘Aussie’ attempted to recover against its US rival, the US Dollar’s strength may continue to apply pressure to the AUD/USD exchange rate in coming days.
Last week, positive data and surprisingly hawkish Federal Reserve policymakers injected confidence into the ‘Greenback’ and boosted risk-off movements.
Optimistic data included Friday’s key retail sales reports, which escaped contraction of -0.4% to score an impressive 1.3% increase in consumer spending. This was followed by news that the preliminary University of Michigan confidence index had jumped from 89.0 to a high 95.8, well above the forecast 89.5.
The US Dollar was also bullish on Friday in response to hawkish Fed policymakers, such as Kansas City Fed President Esther George. George spoke last week and claimed that while the need for gradual rate hikes was understandable, the current US interest rate was too low to support the improving economy.
Tuesday’s session will likely lead to definitive movement in the AUD/USD exchange rate with key releases due for both regions. The weakened Australian Dollar especially is sure to see inspired direction in response to the Reserve Bank of Australia’s (RBA) minutes from its May meeting.
The RBA typically follows up one interest rate cut with another soon after, and as a result investors are expecting to find some indication of the RBA’s rate cut plans in the minutes report. If the report indicates a dovish tone, the Australian Dollar could see a reversal of recent gains.
Key US data due for release on Tuesday night includes April’s highly anticipated Consumer Price Index (CPI) report, which is currently expected to improve from 0.9% to 1.1% year-on-year and recover from 0.1% to 0.3% month-on-month. US housing data and weekly average earnings are also due for release.
As always, the AUD/USD exchange rate is also likely to move in response to fluctuations in commodity prices, as well as attitudes of Federal Reserve policymakers.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate traded at around 0.7294, while the US Dollar to Australian Dollar (AUD/USD) exchange rate hit 1.3713.
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