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Australian Dollar to US Dollar Exchange Rate Slips from Best Levels in Over Three Years

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Australian Dollar to US Dollar Exchange Rate Slips as US Dollar Bought from Lows

Could the US Dollar selloff be finally over? The Australian Dollar to US Dollar exchange rate slipped from near its best levels in over three years on Monday, as investors opted to buy the US currency back from its cheapest levels.

Still, AUD/USD remains relatively close to its recent highs and is still well above last week’s opening levels. AUD/USD climbed from 0.8002 to 0.8114 last week and trended near 0.8093 on Monday.

US Dollar (USD) weakness has persisted for weeks now due to market uncertainty about the Federal Reserve monetary policy outlook for 2018, as well as US political concerns.

Risk-sentiment has also driven Australian Dollar and US Dollar movement.

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As the US Dollar was bought up from its cheapest levels on Monday, market appetite for risk-correlated currencies like the Australian Dollar (AUD) faded.

US Dollar (USD) Exchange Rate Recovery Limited by Mixed Inflation Stats

Demand for the US Dollar could have been even stronger on Monday if the latest US Personal Consumption Expenditure (PCE) results had impressed traders. Instead however, the data was mixed.

December’s monthly PCE price index slipped from 0.2% to 0.1%, while the yearly figure slowed from 1.8% to 1.7%. The core PCE stats met expectations, coming in at 0.2% month-on-month and 1.5% year-on-year.

The personal income print beat expectations, rising from 0.3% to 0.4%. However, the personal spending figure fell short of 0.5% forecasts and slowed from 0.8% to 0.4%.

Overall, the data was not enough to have a significant impact on Federal Reserve interest rate hike bets.

Markets remain uncertain about what kind of tone to expect from the Federal Reserve in the coming year. Some analysts predict as few as two rate hikes from the bank in 2018, while others forecast as many as four.

Australian Dollar (AUD) Exchange Rates Driven by Risk-Sentiment

At the end of last week, the Australian Dollar saw a significant boost in demand as the 2018 World Economic Forum (WEF) in Davos wrapped up.

Markets had been highly concerned that the US Presidency would push increasingly protectionist rhetoric on US trade during the World Economic Forum, but his anticipated speech came and went with no notable surprises.

As there were seemingly no fresh concerns about global trade, the conclusion of the Davos event saw investors piling into risk-correlated currencies like the Australian Dollar.

However, the risk-rally was brief and limited so Australian Dollar trade was limp on Monday, with investors awaiting key data due in the coming days.

Australian Dollar to US Dollar (AUD/USD) Forecast: Australian Inflation and Fed in Focus

The next few days have the potential to be pivotal for Australian Dollar to US Dollar (AUD/USD) exchange rate trade.

On top of the potential that risk-sentiment could be shifted by US political news, major economic data and central bank news will likely affect AUD/USD in the coming days.

Tuesday will see the publication of Australia’s NAB business confidence survey for December, and US consumer confidence data for January from CB.

Wednesday’s session will be even more vital. Australia’s key Q4 2017 Consumer Price Index (CPI) report will be published, as well US employment change data from ADP.

However, the biggest event on Wednesday is likely to be the Federal Reserve’s January policy decision. If the Fed’s tone on monetary policy surprises investors it is likely to influence the US Dollar as well as risk sentiment.

The meeting will also mark Fed Chairwoman Janet Yellen’s last decision in the role before she is succeeded by Jerome Powell.

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