The Australian Dollar to US Dollar (AUD/USD) exchange rate advanced by around 0.9% during Wednesday’s European session.
China’s equity market ended the Asian session up for the first time in three days, causing market sentiment to improve. The Shanghai Composite Index ended the session 4.9% higher, all gains coming in the final hour of trade.
As a risk-correlated asset, the Australian Dollar rallied versus its major peers in response. The gains, coming in the last hour, suggest more intervention from Beijing. However, given that the vast amounts the Chinese government has pumped into the equity market have not been enough to sustain a recovery, many fear that Beijing is just throwing money into a growing black hole.
After US economic data showed inflation dipped unexpectedly, the US Dollar softened versus its major peers. This supported demand for the high-yielding ‘Aussie’. In addition, the US Dollar downtrend allowed gold prices to strengthen, which is Australian Dollar supportive.
Saxo Bank’s head of commodity research, Ole Hansen, stated; ‘I see three options: no change, rate hike with a hawkish statement or rate hike with a dovish statement,’ he said. ‘The first two will be gold negative while the last (which is my preferred option) could trigger a recovery as it removes the uncertainty and should keep the Dollar from rising too fast.’
As described above, the US Dollar declined versus most of its major peers after inflation data disappointed. Although many experts have stated that drop in inflation will not affect the Federal Open Market Committee (FOMC) decision, it certainly doesn’t add any pressure for a rate hike. Should the Federal Reserve opt to hold the cash rate after the two-day meeting concludes, the Australian Dollar is likely to surge. With that being said, if the accompanying statement from Fed Chair Janet Yellen is hawkish in tone, ‘Aussie’ gains could be tempered.
With so much uncertainty and divided opinion in the run up to the Federal Reserve interest rate announcement on Thursday, there is a high potential for Australian Dollar to US Dollar (AUD/USD) exchange rate fluctuation. Australia’s economic data is unlikely to be particularly impactful, and similarly US data is likely to be overshadowed by traders awaiting the FOMC decision.
The Australian Dollar to US Dollar (AUD/USD) exchange rate was trending within the range of 0.7119 to 0.7197 during Wednesday’s European session.
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