The Australian Dollar to US Dollar (AUD/USD) exchange rate suffered a blow on Wednesday after Australia’s latest CPI report saw it plummet across the board. Attempted recoveries have failed despite a weakened US Dollar.
Despite opening the previous week optimistically and reaching a high of 0.7763 on Tuesday, AUD/USD plummeted on Wednesday’s bearish Consumer Price Index (CPI) scores, hitting a two-week-low of 0.7573.
While the ‘Aussie’ has made attempts to recover on poor US data and improving risk-sentiment, it has only gained around 60 pips and currently trends narrowly in the region of 0.7630.
Following Wednesday’s bearish CPI scores of 1.3% YoY and -0.2% MoM, the ‘Aussie’ has been consistently held back by poor data.
Thursday’s export prices printed poorly and Friday’s key private sector credit report unexpectedly slowed from 6.6% to 6.4% year-on-year, despite predictions that it would hold steady.
This dovish attitude towards the ‘Aussie’ has overpowered increased risk-on trading, with oil prices hitting their highest of 2016 on Friday, according to the BBC, and a weaker US Dollar and surprisingly uneventful Bank of Japan (BoJ) policy meeting denting the appeal of safer currencies.
The US Dollar has seen decreased favour against many of its rivals besides the Australian Dollar over the past week, hindered by a slew of negative data releases and a largely uninspiring Federal Open Market Committee (FOMC) meeting.
However, the ‘Greenback’ was able to hold on and prevent a risk-influenced recovery from the weakened ‘Aussie’ due to slim hopes that the Federal Reserve could choose to hike rates as soon as June.
According to Bloomberg, the Fed’s policymakers took a surprisingly optimistic approach when they chose to freeze US key rates.
‘Federal Reserve policy makers left open the door to raising interest rates in June by nodding to improvement in global financial markets and downplaying recent weakness in the US economy.
The Federal Open Market Committee omitted previous language that “global economic and financial developments continue to pose risks,” instead saying officials will “closely monitor” the world situation, according to a statement released Wednesday following a two-day meeting in Washington.’
USD was also boosted by an optimistic personal consumption report, which showed the previous score’s 2.4% only slowing to 1.9% rather than 1.7% as expected.
Data indicating that jobless claims had dropped by 5k also slightly helped ‘Buck’ sentiment. Unfortunately, the latest key US Gross Domestic Product (GDP) report slowed from 1.4% to an unexpectedly low 0.5%.
Next week’s session seems set to be a vital one for both currencies, but the Australian Dollar’s movement throughout the week could well be decided by Tuesday’s highly anticipated Reserve Bank of Australia (RBA) rate decision.
Analysts expect that the latest monthly announcement will further stress the effects of the Australian Dollar’s overvaluation in light of this week’s bearish inflation reports.
Some analysts expect rate cuts could be strongly hinted at or even put into practise, a move that would likely send the risky Australian Dollar plummeting regardless of USD weakness.
US data dominates the scene next week once again with influential data due for release almost every day, most crucial are Tuesday and Thursday’s highly anticipated April ISM reports followed by key unemployment and payroll change reports rounding off the week on Friday.
While the US Dollar won out against the Australian Dollar over the past week, ‘Aussie’ confidence could return if the RBA keeps dovishness to a minimum or if next week’s slew of US data is largely negative.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate was trading around 0.7630, while the US Dollar to Australian Dollar (USD/AUD) exchange rate was trending in the region of 1.3106.
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