The Australian Dollar to US Dollar (AUD/USD) exchange rate could be in for major movement during Wednesday’s American session with the Federal Open Market Committee (FOMC) due to announce its latest interest rate decision.
The Federal Reserve event is expected to dominate the currency market today with investors looking toward the central bank for guidance on potential interest rate hikes. Many investors expect to see the Fed remove the word ‘patient’ in its latest statement.
Industry expert Neil Dutta stated: ‘That would make the statement more neutral. If they talk about “reasonable confidence” in the inflation outlook, that means they are stressing inflation more than employment.’
In previous meetings, the FOMC have put heavy emphasis on the labour market and suggested that employment would be the main driver for a UK rate hike.
Unlike some other central bankers, Fed Chairwoman Janet Yellen has been relatively consistent in her statements on the timeframe regarding US borrowing costs. However, Yellen has faced criticism for not addressing the severe impact a stronger US Dollar could have.
Economic analyst Terry Sheehan commented: ‘So far Yellen has kind of downplayed things like the impact of the stronger Dollar, or the disinflationary trends in some of the larger economies and some of the disruptions that we could see from them. The trade data is already showing some signs of slowing in exports, so I would really like to know just how confident she is regarding the risks to the outlook.’
Australia’s Westpac Leading Index picked up pace on Wednesday when it recorded 0.3% in February after January’s 0.1%.
Westpac economist Matthew Hassan commented: ‘After showing persistently weak, sub-trend momentum over the last 12 months, this is the most promising result in quite some time. It suggests the Australian economy will start to regain some momentum towards the end of this year, although it remains to be seen how well this pick-up is sustained.’
The AUD/USD exchange rate is likely to move on RBA rate speculation and global developments over the rest of the week with little influential Australian and US domestic data out for release after the FOMC announcement and follow up press conference.
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