Looming US Inflation Prompts Market Caution – AUD/USD Exchange Rate Holds Steady
The Australian Dollar (AUD/USD) exchange rate remained within a narrow band on Wednesday morning, with a sparse Australian data calendar leaving markets to focus on the looming US inflation release and the implications it could have on the ‘Aussie’ Dollar.
Markets currently expect the US year-on-year inflation reading to slip from 2.1% to 1.9%, with the core reading (excluding food and energy) forecast to slip from 1.8% to 1.7%.
This is pertinent in that a drop in US inflation could scupper market expectations for a rate hike from the US Fed in March, an eventuality that could leave the US Dollar floundering.
There is, however, the possibility that given the squeeze in the US labour market, inflation in the US in January could print above-forecasts.
If this occurs then the US Dollar would find massive renewed demand, with economists expected to fully price in a rate hike in March.
Aussie Consumer Confidence Slips – AUD Exchange Rates Prove Resilient
Consumer confidence in Australia fell in January, according to the latest Westpac survey.
Data yesterday from the Westpac-Melbourne Institute monthly survey of consumer sentiment revealed a 2.3% drop from January’s four-year high – slipping from 105.1 to 102.7.
This result was largely driven by ongoing chaos within the stock markets, with Australian consumers largely unnerved by concerns for global financial stability and what it could mean for their personal finances.
This is, however, the third consecutive reading above 100, with any reading above the 100-point mark illustrating more optimism than pessimism.
Westpac Chief Economist Bill Evans described the survey thusly:
‘The survey was conducted over the week of February 5 – February 11. That week was marked by a wave of volatility in global share markets. Extensive media coverage of these developments would have unnerved respondents on two fronts – the impact on their own financial positon and concerns for global stability’.
As a result the Australian Dollar maintained its composure despite the contraction.
AUD/USD Exchange Rate Forecast: Australian Labour Market Figures in the Spotlight
The Australian Dollar US Dollar (AUD/USD) exchange rate could encounter even more volatility tomorrow as markets react to Australia’s January labour market figures.
Australia’s key unemployment rate is currently expected to print at 5.5%, consistent with the previous period.
This might provide the Australian Dollar some support, particularly if a large number of jobs have been added during the January period.
Another factor to keep an eye on will be iron ore prices, however.
Iron ore prices might have steadied yesterday, but ongoing volatility and plummeting demand from China’s steel industry may continue to prove significant limitations on Australia’s primary export.