Currency News News AUD USD Australian Dollar to US Dollar Exchange Rate Forecast to Plunge if Fed Hints at Faster Rate Hike Pace

Australian Dollar to US Dollar Exchange Rate Forecast to Plunge if Fed Hints at Faster Rate Hike Pace

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Australian Dollar to US Dollar Exchange Rate Steady as Investors Firm Ahead of Fed

Investors have had little reason to move on the Australian Dollar to US Dollar (AUD/USD) exchange rate so far this week, as markets anticipate March’s Federal Reserve policy decision.

Last week saw sharp losses for AUD/USD, as the pair fell from 0.7852 to 0.7716, but so far this week AUD/USD movement has been limited and range bound. The pair has fluctuated between lows of 0.7676 and highs of 0.7722.

The Federal Reserve will hold its March policy decision during Wednesday’s American session and investors are likely to spend Thursday’s Asian session reacting to which tone the bank takes.

As it will be the first meeting helmed by new Fed Chairman Jerome Powell, markets are anxiously anticipating the decision and the bank’s tone on the 2018 US monetary policy outlook.

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The possibility that the Fed could indicate that the pace of US rate hikes could rise is making investors hesitant to buy the Australian Dollar (AUD).

Australian Dollar (AUD) Exchange Rates Limited by Market Risk-Aversion

On top of speculation that the Federal Reserve may take a more hawkish tone on monetary policy, risk-sentiment has also been weaker in recent sessions amid lasting concerns about rising protectionist rhetoric from the US Presidential administration.

The US has not backed down from its proposals to introduce stricter trade tariffs on US imports, and could continue to introduce more protectionist policies.

This has prompted backlash from China, which is Australia’s biggest trade partner. The possibility of a ‘trade war’ between the US and China has left the risky trade-correlated Australian Dollar unappealing.

Australian ecostats have had little impact on the Australian Dollar this week either, and the latest Reserve Bank of Australia (RBA) meeting minutes simply reasserted that the bank would not be following the Federal Reserve in hiking interest rates.

US Dollar (USD) Exchange Rates Supported Ahead of Fed Meeting

Thanks to some decent US data, as well as general market anticipation for the Fed meeting, the US Dollar (USD) has seen firm performance this week so far.

Wednesday saw the publication of February’s US existing home sales results, which came in slightly above expectations at 5.54m, rather than the predicted 5.4m. The month-on-month figure came in at 3%, rather than the predicted 0.5%.

According to National Association of Realtors (NAR) chief economist Lawrence Yun;

‘A big jump in existing sales in the South and West last month helped the housing market recover from a two-month sales slump,. The very healthy US economy and labor market are creating a sizeable interest in buying a home in early 2018. However, even as seasonal inventory gains helped boost sales last month, home prices – especially in the West – shot up considerably. Affordability continues to be a pressing issue because new and existing housing supply is still severely subpar.’

Australian Dollar to US Dollar Forecast: Federal Reserve News and Australian Job Stats Ahead

The Federal Reserve will hold its March policy decision during Wednesday’s American session and this is likely to inspire Australian Dollar to US Dollar (AUD/USD) exchange rate movement during the early hours of Thursday’s Asian session.

It is widely expected that the Fed will hike US interest rates to 1.75% and this has been largely priced into the US Dollar already.

However, as it is the first policy decision and Fed press conference of new Fed Chairman Jerome Powell the tone the bank takes will be highly influential to US Dollar trade.

Markets still bet that the Federal Reserve will hike US interest rates around three times throughout 2018, including one hike this week.

Still, there has been regular speculation that the Fed could accelerate the pace of US interest rate hikes and forecast four 2018 rate hikes instead.

If the Fed does hint that there could be four rate hikes in 2018, the US Dollar could see stronger demand towards the end of the week and push AUD/USD lower.

The Australian Dollar could see stronger demand too though, if Australia’s February job market results impress investors.

Australian job stats from February will be published during Thursday’s Asian session. The key unemployment rate is expected to remain at 5.5% and the employment change figure is predicted to come in at around 20k.

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