After falling every week for a month the Australian Dollar to US Dollar (AUD/USD) exchange rate attempted to recover on Tuesday as positive Australian data and Fed uncertainty led to the ‘Aussie’ leaping up against the majors.
AUD/USD recently dropped for its fifth consecutive week, hitting a near three-month-low of 0.7153 last week. However, the pair looked to gain around 60 pips during Tuesday’s session. At the time of writing, AUD/USD was up around 0.7% and trended just below its new weekly high, 0.7261.
The factors behind the Australian Dollar’s sudden increase in favour include a series of positive data reports, as well as investors readjusting positions following the ‘Aussie’s recent lows.
While Monday’s HIA new home sales report showed that property sales declined -4.7% following an 8.9% increase the previous month, Tuesday’s data was strong enough to bolster ‘Aussie’ appetite. Building approvals unexpectedly left negative territory by improving from -5.4% to 0.7%, beating out expectations of -6.7%.
Other data that boosted the Australian Dollar included private sector credit’s increase from 6.4% to 6.7%, better than the expected 6.5%. Lastly, a surprisingly positive net exports of GDP report showed a marked improvement from 0.00 to 1.10.
The net exports figure is typically low-influence, but on this occasion the huge increase has been cited as a key reason that many investors now expect an impressive Q1 GDP score for Australia – according to Business Insider Australia.
‘Fitting with that sentiment, economists at CBA have wasted little time revising up its GDP forecast, predicting an enormous 1.1% quarterly growth figure, something that will see the year-on-year rate accelerate to 3.2% if realised.’
This news was so positive for Asian trade that it also dragged up other risky currencies, like the New Zealand Dollar, and sent the ‘safe-haven’ US Dollar lower.
The US Dollar appeared to be struggling from investor uncertainty during Monday and Tuesday’s trading sessions, as bets on whether or not the Federal Reserve would choose to hike rates in its upcoming June meeting remained relatively low.
During Friday’s US session, Federal Reserve Chairwoman Janet Yellen hinted that the US economy continuing at its current rate would inevitably lead to appropriate interest rate hikes.
This was followed on Monday by comments from St. Louis Fed President James Bullard. Bullard argued that markets were ‘well-prepared’ for an interest rate hike occurring sometime this summer, increasing investor confidence that a hike could be expected before September.
However, Chairwoman Yellen’s comments have been seen as dovish by some analysts due to her usual reminder of the Fed looking at rate hikes ‘gradually and cautiously’.
While the US Dollar rallied on the comments, bets that the rate could be hiked in June were dampened by various factors affecting the global economy, such as the possibility that Britain could ‘Brexit’ from the EU.
The Australian Dollar’s rally was weighed down slightly by US data released on Tuesday however. Personal spending unexpectedly rose from 0.0% to 1.0%, while the highly anticipated personal consumption expenditure figure scored the expected 1.6% year-on-year.
Wednesday looks to be a vital session for Australian Dollar trade, as investors will be closely eyeing the Australian Q1 Gross Domestic Product (GDP) report for numbers as strong as those indicated in Tuesday’s export data.
Growth is currently expected to have improved from 0.6% to 0.8% quarter-on-quarter and slowed from 3.0% to 2.8% year-on-year. However, if some analyst predictions for output as strong as 1.1% and 3.2% respectively become reality, the ‘Aussie’ could surge even further.
US data will be relatively quiet during Wednesday’s Asian session, but Thursday will see the release of ISM’s Manufacturing score, alongside ISM prices paid and construction spending scores for April.
Later in Thursday’s session, an update to the Australian trade deficit will be posted alongside Australian retail sales, later followed by US labour figures including employment change and jobless claims.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate traded at around 0.7242, while the US Dollar to Australian Dollar (USD/AUD) exchange rate trended in the region of 1.3808.
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