Overnight, the combination of uncertainty regarding the timing of a Federal Reserve cash rate increase and surging gold prices saw Australian Dollar exchange rates strengthen versus a number of its major peers.
During Monday’s European session the Australian Dollar ticked higher despite damp market sentiment in response to falling global stock prices.
The appreciation was mostly the result of surging gold prices and rising Chinese steel prices. Gold rallied thanks to heightened demand for safe-haven assets. The largest gold producing companies have seen share prices double this year, indicating the outlook on gold is strong.
Curbs on output have seen China steel rally about 4% to a one-month high. This is positive for the ‘Aussie’ (AUD) because a reduced supply could see increased demand for raw materials from other steel producing nations. Iron ore futures also rose.
During today’s session, the Australian Dollar has potential to advance, provided gold prices continue to rally. June’s Consumer Inflation Expectation and May’s NAB Business Confidence reports have potential to cause volatility.
With mounting speculation that the Federal Reserve will look to delay a cash rate increase amid domestic political uncertainty, the US Dollar declined versus a number of its peers overnight.
Policymakers are also very unlikely to consider altering outlook until after the conclusion of the UK’s EU referendum. With all that in mind, analysts only give a 2% chance that the Fed will look to tighten policy this week.
Market sentiment may impact USD exchange rates today. However, damp market sentiment failed to boost the Dollar overnight after Eastspring Investments warned that the next Fed move could be a rate cut, not hike.
‘I’m sympathetic to the view that you don’t want to focus on one data point but the downward revisions in employment, combined with the two quarters of negative profit growth were compelling for me,’ said Nicholas Ferres of Eastspring Investments.
Later tonight, US Advance Retail Sales should cause US Dollar volatility. A poor result will add further US Dollar headwinds.
Market volatility over the past few weeks has increased significantly as the UK’s EU referendum has far-reaching consequences. With that in mind it is increasingly tricky to forecast the AUD/USD exchange rate given both assets are sensitive to risk-appetite.
However, Thursday will be significant with the Federal Open Market Committee (FOMC) interest rate decision due in the early hours. Australia’s labour market data will also be of significance.
The Australian Dollar to US Dollar (AUD/USD) exchange rate was trending within the range of 0.7357 to 0.7411 during Monday’s European session.
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