The Australian Dollar to US Dollar (AUD/USD) exchange rate experienced a considerable drop last week as a risk-off environment drove investors – with risk sentiment seemingly returning this week, could the ‘Aussie’ recover those losses?
The AUD/USD pair was fluctuating as market opened for the week, with shifts slightly skewed in the Australian Dollar’s favour. Though still considerably lower than last week’s high of 0.7682, the pair is currently up slightly from the week’s opening levels and trends in the region of 0.7559.
The risk-off market that shook the Australian Dollar’s lofty position last week had been inspired by a document leak detailing various tax avoidance schemes, known as the ‘Panama Papers’.
The scandal shook global news and investors flocked away from risky commodity currencies like the ‘Aussie’ into ‘safe-haven’ currencies such as the US Dollar.
However, investors may be preparing for a return to risk-on sentiment this week amid hopes that the world’s current oil price crisis may finally see a measure of resolution.
The weak price of oil has been a heavy weight for commodity-correlated currencies to bear over the last year. The hopes that OPEC members would agree to ‘freeze’ oil production and increase demand sent oil prices soaring by 6% this week, strengthening risk-sentiment.
Australian home loans data was also released during Monday’s session. Despite scoring under predictions of 2.0%, it still printed positively at 1.5% from January’s -3.9%. Home investment lending printed at a much more impressive 4.1%, which may be helping to keep the ‘Aussie’ buoyant.
Investors are mixed on the Federal Reserve’s latest actions as the US central bank continues to be a driving force in the US Dollar’s strength.
The odds of the Fed increasing borrowing costs by as much as hoped this year are already slimming as issues with the global economy could see the key interest rate being raised by even less than 50 basis points.
However, despite the more dovish outlook for US rate hikes, the Federal Reserve and its policymakers remain confident that the economy is finally recovering from the 2008 financial crisis.
Fed Chairwoman Janet Yellen reassured some investors last week when she claimed the US economy had made ‘tremendous progress’. Investors were also slightly inspirited after Fed minutes revealed that some policymakers had wanted to raise rates again as soon as April.
Optimistic wholesale inventory data for February revealed a better-than-expected score of -0.5%. This particular measure is more positive for the economy when in negative territories and had released at a disappointing 0.2% in January.
Various policymakers from the Federal Reserve are due to speak over the next few days. This includes William Dudley, Robert Kaplan, Patrick Harker and Jeffrey Lacker, among others.
Investors anticipate that they will reflect on last week’s Fed statements, including the direction and health of the US economy, and put forward their own views on how much interest rates should be hiked by and when.
Australian data is also due during Tuesday’s session, with March’s business confidence score being the one to look out for, though credit card and consumer confidence figures may help move the ‘Aussie’.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate trends around 0.7559 while the US Dollar to Australian Dollar (USD/AUD) exchange rate trends in the region of 1.3228.
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