The Australian Dollar to US Dollar (AUD/USD) exchange rate strengthened by around 0.61% on Wednesday afternoon.
After Australia’s core inflation data printed above expectations, the ‘Aussie’ (AUD) strengthened versus most of its major peers. The improving core consumer prices eased pressure on the Reserve Bank of Australia (RBA) to cut rates.
The US Dollar, meanwhile, is trending higher versus many of its currency rivals as traders await the Federal Open Market Committee rate decision. Although most aren’t expecting any massive policy alterations, hawks will be hoping for a change in language that might give some indication as to the timing of a cash rate hike.
The Australian Dollar to US Dollar (AUD/USD) exchange rate is currently trending in the region of 0.7973.
Although the headline Consumer Prices figure declined significantly in the fourth quarter, the ‘Aussie’ gained against most of its major peers on Wednesday. This can be attributed to traders expecting the inflation rate to drop amid low oil prices, as has been the case in many advanced economies. The core CPI figure may also ease pressure on the Reserve Bank of Australia to cut rates.
CommSec’s chief economist, Craig James, said; ‘The RBA has got to be looking much more in terms of internal price pressures, pressures that the economy is generating, and the major reason why inflation was on the low side was external influences that may not always be there.’
‘There’s no smoking gun in the inflation figures to suggest the RBA can cut interest rates,’ he added. ‘Nevertheless, it may change the RBA’s bias in the February decision to an easing bias away from their neutral stance because we do still have underlying inflation at the low end of the RBA’s target band.’
The Australian Dollar to US Dollar (AUD/USD) exchange rate has dropped to a low today of 0.7897.
Whilst traders await the Federal Reserve policy decision, the US Dollar edged higher as hawks forecast a positive change in language, although most agree that they are unlikely to normalise monetary policy for some time to come.
‘The risk for the Dollar is that the FOMC might sound a little more concerned with regard to the global economy, the impact of low energy prices on their inflation forecast, and the potential impact of the very strong Dollar on the economy and the very low wage backdrop,’ said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
With the FOMC meeting dominating trader focus, the Australian Dollar to US Dollar (AUD/USD) exchange rate is likely to fluctuate. This is especially true given that there will be Australian data published late on Wednesday evening.
The Australian Dollar to US Dollar (AUD/USD) exchange rate reached a high today of 0.8025.
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