Rising Wages Failed to Shore up Australian Dollar US Dollar (AUD/USD) Exchange Rate
While the fourth quarter Australian wage price index bettered forecast this was not enough to shore up the Australian Dollar US Dollar (AUD/USD) exchange rate.
Even though wage growth unexpectedly accelerated to 2.1% on the year the mood towards the Australian Dollar (AUD) still deteriorated on Wednesday.
Markets see the Reserve Bank of Australia (RBA) leaving interest rates on hold for the foreseeable future in spite of wages now moving in the right direction.
AUD exchange rates also came under pressure as a result of a contraction in January’s Westpac leading index, which points towards a weakening in domestic economic activity.
All in all, with wages still running below their long-term average and inflation failing to pick up to the RBA’s target level, investors saw little reason to favour the Australian Dollar.
Limited Impact of Fed Minutes on US Dollar (USD) Exchange Rates Forecast
However, the AUD/USD exchange rate could find some support overnight as investors brace for the release of the Federal Open Market Committee’s (FOMC) January meeting minutes.
Although policymakers are expected to maintain a relatively hawkish outlook at this juncture the ultimate impact on the US Dollar (USD) could still be limited.
With a March interest rate already effectively priced in by markets the US Dollar may struggle to capitalise even on a more hawkish set of minutes.
As Viraj Patel, Foreign Exchange Strategist at ING, noted:
‘One could easily argue that markets are all but pricing in the end of the Fed tightening cycle – assuming a 2.50-2.75% terminal rate and accounting for a small negative term premium at the short-end of the curve (-30bps). Difficult to see a structurally weak $ finding any joy from an already priced in Fed story.’
On the other hand, if the Federal Reserve shows any signs of hesitance this could weigh heavily on USD exchange rates in the near term.
Focus will also fall on February’s Markit manufacturing and services PMIs, even if these tend to be less influential than the rival ISM sector surveys.
Any signs of weakness within the world’s largest economy could benefit the AUD/USD exchange rate, at least temporarily.
Australian Dollar (AUD) Exchange Rates Vulnerable to Market Risk Aversion
With no fresh Australian data due for release ahead of the weekend the AUD/USD exchange rate could struggle to find a meaningful rallying point.
Given the rather cautious policy outlook of the RBA the underlying support for the Australian Dollar looks rather limited at this stage.
As a result the AUD/USD exchange rate remains vulnerable to any particular shift in market risk appetite, especially as fears of a potential trade war between the US and China linger.
Unless investors see greater cause for confidence in the outlook of the global economy AUD exchange rates are likely to remain somewhat out of favour.