The Australian Dollar to US Dollar (AUD/USD) exchange rate fell to a new four-and-a-half year low as fears grow that Russia could dump a number of commodities such as gold onto global markets as it tries to raise cash needed to shore up its finances.
Also weighing heavily on the ‘Aussie’ are expectations that this evenings US Federal Reserve policy minutes release will show that policy makers are getting closer to raising interest rates and will alter their forward guidance.
Any signs from the Fed that an interest rate rise is likely next year will put further pressure on the Australian Dollar.
Tumbling oil prices have had a dramatic impact on oil producing nations. Russia has been particularly badly hit as its economy struggles under the weight of western imposed economic sanctions and the fall in value of its most exported commodity.
The Russian Ruble has fallen to record lows against most major currencies and an attempt by the Russian central bank to halt the slide failed. In desperation, the central bank raised interest rates from 10.5% to 17%.
The interest rate shift will come at a considerable cost, as it will raise borrowing costs for businesses and consumers. The Russian economy was already expected to plunge into recession early next year because of falling oil and gas prices and sanctions
‘We are in the midst of a full-blown Russian economic crisis caused by the collapse in oil prices. With industrial commodity prices remaining under pressure this week and the Russian economic crisis causing rising risk aversion, it’s no surprise the Australian Dollar remains weak,’ said Robert Rennie, chief currency strategist at Westpac.
The US Dollar meanwhile continued to trade higher against the ‘Aussie’ despite data showing that US consumer inflation made its largest decline in six years in November due to the falling oil prices. The data did little to alter economist expectations that the Federal Reserve will begin raising interest rates by the middle of next year.
The Washington based Labour Department said that its Consumer Price Index fell by 0.3%, the biggest decline seen since December 2008. On an annual basis the index increased by 1.3%, the smallest gain since February. Economists had been expecting a monthly decline of 0.1% and an annual rise of 1.4%.
The AUD/USD exchange rate is likely to experience further volatility in tomorrow’s session as the Reserve Bank of Australia releases its latest bulletin and the US releases its latest jobless claims and service PMI data.
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