Investors are expecting a strong performance from US inflation later today, causing the Australian Dollar to US Dollar (AUD/USD) exchange rate to sink. Australia has very little data due out to provide any resistance to the fall, with previous survey results dragging the ‘Aussie’ down further on low consumer confidence.
The ‘Aussie’ has been pushed lower today by the results of the Westpac Consumer Confidence survey, which have shown a large drop in sentiment in January. After a -0.8% fall in optimism last month, the index has fallen -3.5% this month from 100.8 to 97.3. The index is now at its lowest level in four months, although year-on-year (YoY) the result is 4.3% higher.
According to Westpac’s Chief Economist Bill Evens, ‘With limited domestic news during the holiday season consumers appear to have been mainly impacted by the spate of negative news on the international front and the spill over effect on financial markets.’
The report cites a -20% drop in oil prices and a -7.6% drop in Australian shares over the course of the two-week survey period as highlighting the extent to which global conditions are worsening. Survey respondents were less positive about the state of household finances compared to the previous year and offered a more pessimistic outlook of the economy for the next year. The labour market played on respondent’s minds as well, with the Westpac Melbourne Institute Index of Unemployment Expectations increasing 0.7%, although this still leaves the index -5.3% lower than a year ago.
Falling sentiment has partly contributed to the AUD/USD exchange rate slumping -0.7% to trade around 0.6857.
Investors are expecting positive results from today’s slew of US data, which includes the Consumer Price Index figures. Core CPI is expected to show a year-on-year (YoY) rise of 0.1% to 2.1%, while non-core inflation is expected to accelerate from 0.5% in November to 0.8% in December.
The US Dollar is currently performing well against most of the major currencies, with the only losses being against the Swiss Franc (CHF) and the Japanese Yen (JPY). This is in spite of growing sentiment that the Federal Reserve may be forced to reverse the increase in interest rates delivered in December in response to the strengthening global headwinds. US stock markets had the worst start to the year since The Great Depression and with the International Monetary Fund (IMF) cutting global growth forecasts and predictions that oil could sink as low as $10 a barrel, many are worried that the US economy cannot sustain higher interest rates.
The USD/AUD exchange rate is currently trading between 1.4465 and 1.4641.
Australia only has the low-importance Conference Board Leading Index to counter today’s US data slew, so it is likely that positive results for the US will see the ‘Aussie’ dive even further into negative territory.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is currently trading between 0.6825 and 0.6911.
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