Investors were discouraged to find that the Australian Unemployment Rate had unexpectedly risen at the start of the year, prompting a downtrend for the Australian Dollar to US Dollar (AUD/USD) exchange rate.
While the latest US Industrial and Manufacturing Production figures revealed a stronger-than-expected improvement in output this failed to keep the US Dollar (USD) on a bullish trend for long. Traders were not encouraged by the January meeting minutes of the Federal Open Market Committee (FOMC) as policymakers were found to have been decidedly more dovish with regards to the possibility of another imminent interest rate hike. Consequently demand for the ‘Greenback’ soon slumped.
Thursday’s Australian employment data proved decidedly disappointing, however, as the January Unemployment Rate jumped from 5.8% to 6.0%. Reversing some of the positive trend of the previous months and undermining the outlook of the domestic economy, this weaker showing prompted the ‘Aussie’ (AUD) to trend lower across the board.
In spite of this, sentiment towards the antipodean currency recovered somewhat during the European session, bolstered by the continued rally of global stock markets. While the latest Chinese CPI showed that inflation had failed to pick up as far as forecast, clocking in at 1.8% rather than 1.9%, traders remained in risk-on mode. Largely this appears to be due to hopes that the People’s Bank of China (PBoC) could introduce further economic stimulus as a result.
Nevertheless, confidence in the US Dollar soon rebounded as both the Philadelphia Fed Manufacturing Survey and Leading Indicators report demonstrated improvement on the month. These suggested that the world’s largest economy remains in more robust health in spite of mounting downside pressures. While this is unlikely to prompt the Fed into considering nearer-term monetary tightening this stronger showing has bolstered demand for the ‘Greenback’.
Although there is no further Australian data due for publication ahead of the weekend the Australian Dollar to US Dollar (AUD/USD) exchange rate may trend higher if the January US Consumer Price Index proves disappointing.
Investors are anticipating a strong uptick in inflationary pressure on the year, from 0.7% to 1.3%, a result which would vindicate the Fed’s decision to hike interest rates in December and shore up the US Dollar. However, a weaker level of inflation would encourage the FOMC to hold interest rates unchanged for longer, as well as reducing pressure on the Reserve Bank of Australia (RBA) to consider loosening monetary policy over the coming months.
At the time of writing, the Australian Dollar to US Dollar (AUD/USD) exchange rate was slumped around 0.7136, while the US Dollar to Australian Dollar (USD/AUD) pairing was making gains in the region of 1.4011.
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