After seeing a strong jump in the wake of the latest Federal Open Market Committee (FOMC) policy meeting the Australian Dollar to US Dollar (AUD/USD) exchange rate has struggled to hold onto its gains.
Markets were somewhat surprised to find that the Australian Unemployment Rate had unexpectedly dipped from 6.0% to 5.8% in February. While the corresponding Employment Change figure was a little more disappointing investors were nevertheless prompted to flock back to the ‘Aussie’ (AUD) as confidence in the domestic economy grew.
The US Dollar (USD), meanwhile, was weighed down heavily by the news that the Federal Open Market Committee (FOMC) had lowered its forecasts for monetary tightening in the coming year. With just two interest rate hikes now expected in 2016, rather than the four previously suggested, the ‘Greenback’ was prompted to slump sharply across the board.
As the odds of an imminent Fed rate hike consequently declined, markets were inclined to return to a risk-on mentality, with the price of commodities bolstered by the announcement. Consequently the Australian Dollar to US Dollar (AUD/USD) exchange rate was on strong form throughout Thursday’s European session.
However, the US Dollar has recovered some of its losses ahead of the weekend after the March Philadelphia Fed Survey was found to have strongly bettered forecasts, clocking in at 12.4 rather than -1.5. This seemed to suggest that the domestic manufacturing sector has begun to shake off some of the negative influence of global downside risks, shoring up confidence in the outlook of the US economy.
While Reserve Bank of Australia (RBA) policymaker Luci Ellis spoke on Friday a lack of commentary on monetary policy prevented the speech from offering any particular support to the antipodean currency. As profit taking also drove traders back towards the safe-haven ‘Greenback’ the AUD/USD exchange rate entered a downtrend on Friday.
Next week the fourth quarter Australian House Price Index is likely to provoke some fresh volatility for the Australian Dollar, particularly as the domestic housing market has been showing signs of overheating. Nevertheless, if growth in house prices remains robust then the ‘Aussie’ is likely to return to more bullish form against rivals.
US Durable Goods Orders could push the US Dollar back onto a downtrend later in the week, with forecasts suggesting that orders declined sharply on the month in February. As weaker US data would encourage the Fed to leave interest rates unchanged for longer any decline here could well shore up the AUD/USD exchange rate.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate was slumped around 0.7614, while the US Dollar to Australian Dollar (USD/AUD) pairing was making gains in the region of 1.3127.
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