The Australian Dollar was unable to continue its previously bullish behaviour this week, with investors hesitant to allow AUD/USD to rise above 0.77.
US Dollar demand was solidified on Monday too, as hawkish Fed comments made over the weekend gave markets hope for the future of monetary policy. The pair traded around 0.7610 with a downward bias during Monday’s European session.
Following bullish behaviour from the Australian Dollar earlier in August, the ‘Aussie’ struggled to hold its highest levels and plunged towards the end of last week as investors sold the currency from its highest levels.
The ‘Aussie’ had recently rallied despite mixed Australian economic news and even a Reserve Bank of Australia (RBA) interest rate cut, as the high yielding currency was appealing compared to currencies from markets with ultra-low inflation.
Prices of iron ore, Australia’s primary commodity export, had also increased in August, rising above US$60 per tonne where they have remained since last week.
All these supporting factors weren’t enough to keep the risk-correlated ‘Aussie’ higher on Friday and Monday though as investors headed away from risky assets and towards the US Dollar amid hopes that the Fed could raise US interest rates in 2016.
The US Dollar has floundered in recent weeks due to an underwhelming barrage of US datasets. The Federal Reserve typically depends on growth in various sectors of the US before it decides to raise interest rates, so poor data has severely weighed on the increasingly Fed-sensitive ‘Greenback’.
However, the Dollar remains one of the world’s premier currencies and as a result there are many key levels of psychological resistance preventing the currency from losing too much value.
As investors bought the US Dollar back from its cheaper levels last Friday, its buy-up continued on Monday thanks to surprisingly hawkish comments made by Fed Vice Chairman Stanley Fischer over the weekend. The BBC reported;
‘The Federal Reserve is close to hitting its targets for US employment and 2% inflation, according to the central bank’s vice chairman, Stanley Fischer. …
“We are close to our targets,” he said on Sunday, adding that jobs growth had been “remarkably resilient”. …
Mr Fischer said this year’s pace of jobs growth, although slower than in 2015, was “more than enough” for the labour market to continue to improve.’
While he did not specifically mention interest rates, Fed rate hike expectations increased as a result of his comments. This allowed the US Dollar to continue advancing on Monday.
The coming week is set to be a rollercoaster ride for the US Dollar. While Monday’s session was relatively quiet, Tuesday includes preliminary Manufacturing PMIs for August, house figures for July are due on Wednesday, and durable goods orders for July are set to be published on Thursday.
Topping all this off is Friday’s key session, which includes a slew of vital US data. July’s trade balance, Q2 Gross Domestic Product (GDP) figures and personal consumption make up the data, but markets will be focused entirely on the Jackson Hole symposium in Wyoming.
The Jackson Hole symposium is a global central bank conference, at which Fed Chairwoman Janet Yellen is expected to make her first speech for quite some time.
The US Dollar’s movements may be limited as investors await this key session, but this means that AUD/USD is unlikely to advance or fall far this week.
Australia’s own economic calendar is relatively quiet, meaning that risk sentiment, iron ore prices and the US Dollar will be the primary driving forces for the ‘Aussie’ this week.
At the time of writing, the ‘Aussie’ to US Dollar exchange rate traded at around 0.7610, while the US Dollar to Australian Dollar exchange rate trended near 1.3135.
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