Australian Dollar Forecast to Struggle Against US Dollar

Australian Dollar (AUD)

The Australian Dollar to US Dollar (AUD/USD) exchange rate slipped in the last few days as the US Dollar strengthened and sentiment towards riskier currencies like the ‘Aussie’ fluctuated.

Poor Construction Data Leaves Australian Dollar (AUD) Weaker

The ‘Aussie’ Dollar has struggled to maintain its strength in the last week as risk sentiment continued to drop on a strengthening US Dollar and news of struggling commodity prices.

At the time of writing, the AUD/USD exchange rate fluctuated in the region of 0.7190, holding its ground after losing around -30 pips throughout the week so far.

The pair dropped to its lowest point since February, 0.7153, on Tuesday night, but has since rebounded slightly as the ‘Aussie’ makes ongoing recovery attempts.

Wednesday’s data did little to help the Australian Dollar’s strength, as the Q1 report of Australian construction work printed a larger than expected contraction of -2.6%. The figure was expected to narrow from -3.6% to -1.5%.

With the ‘Aussie’ recently plummeting from the Reserve Bank of Australia’s (RBA) dovish statements, the currency remains unappealing to risk investors. The recent drop of risk-sentiment due to falling prices of iron ore, Australia’s most lucrative commodity, also weighed on the ‘Aussie’.

US Dollar (USD) Rally Slows on Mixed US Data

While the Australian Dollar remains weak against a majority of its peers, the US Dollar’s recent round of strengthening could be set to end as a result of the US session’s Wednesday data.

While new home sales were positive, leaving contraction of -1.5% to score a high 16.6%, other figures including the house price purchase index and US PMI printed below expectations.

Q1’s quarter-on-quarter house price purchases was down from 1.5% to 1.3%. May’s preliminary PMI was widely disappointing, with its Services score falling from 52.8 to 51.2 and its key Composite score slipping from 52.8 to a low 50.8.

Crude oil inventories also dropped twice as much as expected, from 1310k to -4226k, undermining a smaller projected drop of -2000k.

Not all data disappointed however, as the advance goods trace deficit worsened less than expected. Initially estimated to deepen from -$57.1b to -$60.0b, it instead merely dipped to -$57.5b.

The US Dollar also slowed due to a perceived change in tone from Federal Reserve policymakers.

While the ‘Greenback’ had been strong previously due to a number of hawkish officials playing up the possibility of a June interest rate hike, hike bets began to cool again during Wednesday’s session after St Louis Fed President Bullard suggested that markets shouldn’t necessarily count on a June rate hike.

Australian Dollar to US Dollar (AUD/USD) Exchange Rate Forecast: US Durable Goods Orders Ahead

The US Dollar could see considerable movement on Thursday night depending on the result of April’s highly anticipated preliminary durable goods report.

Currently estimated to have slowed from 1.3% to 0.5%, the ‘Greenback’ could extend its strength if this figure prints above expectations but the ‘Aussie’ could recover if it scores lower than 0.5%.

Alongside the key goods orders report will be other key US releases including jobless claims figures.

Australian data, on the other hand, is set to be relatively quiet for the remainder of the week, with Thursday seeing the less-influential private capital expenditure report for Q1.

However, the ‘Aussie’ will of course continue to be inspired by shifts in risk-sentiment and the commodity trade. While iron ore prices are currently down, shift could see the Australian Dollar buoyed.

AUD/USD investors will also keep their eyes fixated on statements from the central banks, with the RBA possibly cutting rates again soon and the Fed currently weighing the possibility of a June hike.

At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate trended in the region of 0.7190, while the US Dollar to Australian Dollar (USD/AUD) exchange rate traded at around 1.3910.

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