The Australian Dollar to US Dollar (AUD/USD) exchange rate fell overnight in spite of a moderately positive Australian retail sales report as investors fixated on the prospect of the Reserve Bank of Australia (RBA) cutting interest rates.
Prior to the publication of Australian growth data for the third quarter, investors had been pricing in the possibility of interest rates being increased in 2015.
However, after it emerged that the South Pacific nation posted growth of just 0.3% in the three months through September (less than half the level of growth expected) the odds of borrowing costs being increased plummeted, and industry experts began to predict that a rate cut could be on the horizon.
As stated by industry expert Mark Mulligan; ‘The latest [growth] figures takes year-on-year growth to 2.7 per cent, compared with average GDP growth of 2.9 per cent over the past decade and a 15-year average of 3.1 per cent. Another weak quarter could push calendar year GDP growth below 2.5 per cent, under the Reserve Bank of Australia’s minimum forecast. Most economists had predicted September quarter growth of around 0.7 per cent, equating to 3.1 per cent over the last 12 months.
Although many forecasters were relatively sanguine about the weak data, highlighting a pick-up in non-mining related investment, credit market traders immediately took new positions on forward swap rates, pricing in an almost certain RBA cash rate cut next year.’
The AUD/USD exchange rate fell to an over four-year low after the growth data was published and has continued to trend at around that level ever since.
The fact that Australian retail sales increased by 0.4% on the month in October, bettering the 0.3% gain forecast by economists, lent the Australian Dollar little support.
Before the weekend the Australian Dollar to US Dollar (AUD/USD) exchange rate could experience fluctuations as a result of the AiG Performance of Construction Index, the US Non-Farm Payrolls report and US Factory Orders figures.
A solid US employment gain would bolster the US Dollar and could push the AUD/USD pairing lower before the close of trading.
The Australian Dollar to US Dollar (AUD/USD) exchange rate was trading in the region of 0.8410.
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