Global Stock Market Recovery Boosts Australian Dollar US Dollar (AUD/USD) Exchange Rate
The general resurgence in global stock markets has helped to boost the Australian Dollar to US Dollar (AUD/USD) exchange rate away from last week’s lows.
Rising risk appetite has fuelled greater confidence in the Australian Dollar (AUD), given its close correlation to commodities and wider market sentiment.
Investors were further encouraged on Tuesday by the latest NAB business survey, with the headline confidence index rising from 10 to 12 in January.
While lingering uncertainties remain over the underlying health of the Australian economy this stronger showing was enough to shore up AUD exchange rates.
However, the details of the survey were not entirely positive, as Andrew Hanlan, research analyst at Westpac, noted:
‘The consumer sectors continue to disappoint at a time of weak wages growth. For January, the survey reports that retail improved somewhat to a still soft +3, while recreation & personal on a three month average basis is at a 3½ year low.
‘The employment conditions index has eased over recent months. This suggests that official jobs data has overshot to the high side. The survey points to solid jobs growth, moderating from the current brisk pace.’
Forecast Widening of US Deficit Weighs Heavily on US Dollar (USD) Exchange Rates
With markets starting to recover from their recent correction the US Dollar (USD) has faltered, to the benefit of the AUD/USD exchange rate.
As the odds of an imminent Federal Reserve interest rate hike have already been largely priced into USD exchange rates their upside potential has been rather limited.
Concerns over the impact of the Trump administration’s tax reforms, on both US economic growth and the size of the deficit, are continuing to weigh heavily on the minds of investors, meanwhile.
This unease only increased once the details of the 2019 US budget were unveiled, indicating that the deficit will balloon to 1 trillion US Dollars for years to come in spite of harsh cuts to welfare spending.
Naturally this offered additional support to the AUD/USD exchange rate, with markets unimpressed by the prospect of the world’s largest economy accumulating further debt with no end in sight.
Weaker US Inflation Forecast to Support Further AUD/USD Exchange Rate Gains
However, the AUD/USD exchange rate looks set to come under fresh pressure ahead of Wednesday’s US consumer price index data.
In spite of the already-high expectations for the Fed to raise interest rates in March a strong showing here could see bets on the prospect of policymakers adopting a more aggressive pace of monetary tightening over the course of the year rise.
On the other hand, if inflationary pressure shows signs of easing in January this could dent the appeal of the US Dollar.
While CPI is not the Fed’s preferred measure of inflation a disappointing showing here may be enough to give some policymakers pause, especially if advance retail sales figures also fall short of forecast.