A hawkish response from the Reserve Bank of Australia (RBA) to the Fed’s decision to leave interest rates on hold has seen the AUD/USD conversion rate surge to a three-week best.
In advance of Thursday’s Federal Open Market Committee (FOMC) Rate Decision, the ‘Greenback’ (USD) was trending at a mild gain against rivals as traders positioned themselves for the result of the meeting. While the general expectation was for US policymakers to hold rates at the benchmark 0.25%, there was enough uncertainty surrounding the outcome with suggestions of a more hawkish move on the back of recent employment data to keep the outlook of the currency positive.
At the same time, the ‘Aussie’ (AUD) was weighed down by the prospect of a stronger ‘Buck’, given the pressure that US monetary tightening would put on the global commodity markets.
As had been generally anticipated, the FOMC opted to maintain interest rates at the 0.25% benchmark, although this was accompanied by unexpectedly dovish commentary from Chair Janet Yellen. Yellen’s speech contained the implication that the Fed could hold off on a hike into the next year, which proved decidedly bearish for the ‘Buck’. As a result, the AUD/USD exchange rate immediately spiked to a peak of 0.7264.
In a speech before the House of Representatives today, Reserve Bank of Australia (RBA) Governor Glenn Stevens expressed confidence in the current level of domestic interest rates. Stevens also remained optimistic about the Australian economy’s ability to weather the global slowdown that weighed so heavily on the Fed’s decision, a relatively hawkish stance that saw the ‘Aussie’ continue racking up gains against its weakened rival. As such, the AUD/USD conversion rate soon struck a daily best of 0.7280.
While it had relatively little impact in the wake of these more significant market influences, the US Leading Indicators composite index posted a weaker increase than had been forecast. Clocking in at 0.1% rather than 0.2%, this lent strength to the implication that the domestic economy remains in a delicate state of recovery, due in no small part to the global slowdown and stalling economic growth of China.
After the weekend, the ‘Aussie’ is likely to remain on bullish from against the ‘Greenback’, although some of its momentum may be eroded by a lack of supportive economic data releases. The second quarter Australian House Price Index could continue the trend if the local housing market is shown to be in a solid state of growth, although a weaker figure could push the antipodean currency back onto a downtrend.
On the other hand, US Manufacturing and Services PMIs for September and the Durable Goods Orders figure for August may provide fuel for a ‘Buck’ rally. Positive domestic economic indicators could ultimately prove enough to convince the Fed to reassess its stance and look towards a hike before the end of the year, a prospect that would greatly boost the US Dollar.
At time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate is trending strongly in the region of 0.7226, while the US Dollar to Australian Dollar (USD/AUD) pairing remains slumped at 1.3839.
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