A slide in commodity prices weakened the Australian Dollar to US Dollar (AUD/USD) exchange rate on Monday. Bearish comments on the US economy by presidential candidate Donald Trump softened USD sentiment slightly, but the ‘Greenback’ still held a strong position against the ‘Aussie’ (AUD).
Yesterday’s Australian data failed to provide a strong boost for the ‘Aussie’, even though Building Approvals figures bettered expectations, showing a 3.1% on the month rise and a slowdown in annual contraction from -14.5% to -9% in February. However, Retail Sales stagnated on a seasonally-adjusted basis, falling from 0.3% to 0% in February instead of coming in at 0.4% as predicted.
A small dip in commodity price indexes, including a -0.2% fall in the Bloomberg Commodity index, led by a -0.6% drop in Brent Crude oil, undermined any positive effects from the strong building data. Arrium Ltd, an Australian iron ore miner currently in financial difficulty, halted trading of its shares yesterday after lenders rejected its recapitalisation plan. The company’s struggles with low commodity prices served as a stark reminder that the commodity crisis is not over.
Globally, investor sentiment was curbed by the release of the ‘Panama Papers’, a huge data leak from law firm Mossack Fonseca, which has revealed questionable tax avoidance methods used by many high-profile companies and figures. According to the Australian Tax Office, more than 800 Australian taxpayers have been identified in the data.
US presidential candidate Donald Trump sparked incredulity among economists after an interview with the Washington Post was printed in which the businessman claimed the US economy was on the edge of a huge recession. Trump stated this was because of an overvalued stock market and high real unemployment, which he believed to be around 20%. Economists were quick to dismiss Trump’s claims, but the extent of his influence is likely to see market sentiment muted to some degree.
However, the ‘Greenback’ was still able to make strong gains against the majority of currencies. The slide in commodity prices, coupled with weakened investor sentiment in the wake of the Mossack Fonseca data leak, helped the US Dollar turn bullish.
The Reserve Bank of Australia (RBA) is predicted to make no adjustments to monetary policy during today’s meeting. However, focus on the meeting could negate any positive impact from a strong printing of the AiG Performance of Service Index for March, or upbeat confidence and trade figures.
Two Federal Reserve officials could drive USD sentiment with their speeches. Neel Kashkari, new Fed Bank of Minneapolis President, is likely to call for tighter regulations on banks, potentially undermining sentiment with dovish comments on risks to the financial sector. Charles Evans, on the other hand, could reiterate recent comments that the US economy is strong enough to handle two interest rate hikes in 2016.
The AUD/USD exchange rate trended between 0.7600 and 0.7673 during yesterday’s session.
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