The Australian Dollar to US Dollar (AUD/USD) exchange rate slipped in Friday’s session as investors awaited Federal Reserve Chairwoman Janet Yellen’s speech on monetary policy.
Speculation surrounding the Federal Reserve and interest rate hikes has been growing for months as we draw closer to June—the date in which economists have forecast a rate hike.
In recent weeks, the Federal Reserve has implemented a slight language change; by dropping the word ‘patient’ the Fed boosted confidence that rate hikes were indeed approaching. However, there have been mixed hypotheses on whether the Fed is actually gearing up for higher borrowing costs.
Foreign exchange strategist Joseph Abate commented: ‘There is a lot of uncertainty in the mechanical features of the outlook than people admit to.’
This week saw a variety of opinions, Federal Reserve official James Bullard suggested that now would be a good time to begin normalising monetary policy.
Bullard stated: ‘By removing “patient”, the (Federal Open Market Committee) can return to a more standard monetary policy decision-making, under which an appropriate policy rate is decided at each meeting.’
However, markets will be extremely interested in Fed Chairwoman Janet Yellen’s statements today and speculation surrounding her speech has heightened significantly in recent days. But after last week’s Federal Reserve announcement, it’s unlikely that the central bank chief will have anything radically different to say.
Economist Stephen Stanley commented: ‘The conference is on the new normal, so it’s a relevant topic. I suspect (Yellen’s) discussion will be broader and a bit more academic than what the market wants to hear. I don’t know that she has anything new to add after a week.’
Meanwhile, the Australian Dollar is expected to fluctuate quite significantly on the release of the Fed statement—if US Dollar sentiment jumps, riskier currencies such as the ‘Aussie’ are likely to fall.
The Australian Dollar exchange rate softened on Friday after the price of iron ore dipped. Despite there being an oversupply, industry experts are hesitant to cut production on suggestions that other companies will continue to supply the raw material.
Industry expert Gina Rinehart commented: ‘If only we could do something about that falling iron ore price. Well, we can’t. If Australia doesn’t supply iron ore there’s other countries who will.’
The Australian Dollar to US Dollar (AUD/USD) exchange rate is forecast to fluctuate in Monday’s American session with the release of US Personal Consumption Expenditure figures. Additionally, US Pending Home Sales will also be out.
US Federal Reserve official Stanley Fischer will also be talking on the topic of monetary policy and stability which could cause US Dollar to Australian Dollar (USD/AUD) exchange rate swings.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is trading at 0.7804. The US Dollar to Australian Dollar (USD/AUD) exchange rate is trending in the region of 1.2816.
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